September 15, 2014by iMFdirect

By Steven Barnett and Shaun Roache

“Shadow” banking: a surprisingly colorful term for our staid economics profession. Intended or not, it conjures images of dark, sinister, and even shady transactions. With a name like “shadow banking” it must be bad. This is unfair. While the profession lacks a uniform definition, the idea is financial intermediation that takes place outside of banks—and this can be good, bad, or otherwise.

Our goal here is to shine a light on shadow banking in China. We at the IMF have used many terms. Last year, we had a descriptive one, albeit a mouthful—off-balance sheet and nonbank financial intermediation. The April 2014 Global Financial Sector Report (GFSR) called it nonbank intermediation. This year our China Article IV report used the term shadow banking.

What’s in a name

“That which we call a rose, by any other name would smell as sweet.” Taking a cue from Shakespeare’s Juliet, let us not worry about the label and instead focus on the facts.

Interest in China’s shadow banking…eh, nonbank intermediation…stems mainly from its rapid growth since the global financial crisis in 2008. This is the pink part in Figure 1 which has more than tripled since 2008, albeit from a low base. It has also accounted for half of the increase in overall credit to the economy or total social financing—even more than bank loans.