Shadow Banking refers to capital that is distributed outside the formal banking system, including everything from Mom and Pop lending shops to online credit to giant state owned banks called Trusts. They have grown from a fraction of the economy ten years ago to nearly half of all China’s annual Rmb 25 trillion ($4.1 trillion) in lending in the economy today.

Shadow Banks are a new aspect of capitalism in China – barely regulated, highly risky, yet tolerated by Beijing. They have been permitted to flourish because many companies cannot get access to formal bank loans. It is the Wild West of banking in China. If we define capitalism as economic activity controlled by the private sector, then Shadow Banking is still in a hybrid stage, a halfway house between the state and the private economic. But it is precisely this divide that makes Shadow Banking an important to the rise of capitalism. How Beijing handles this large free market will say a lot about how the country’s economy will grow – will free markets be granted greater leeway?  Also, will Xi Jinping’s tighter political control end this experiment in free markets?

Andrew Collier is the former President of the Bank of China International USA, where he helped to launch BOCI’s U.S. office. Earlier in his career, he was an equity analyst with Bear Stearns and CLSA in Hong Kong, and a journalist covering business for the South China Morning Post in Beijing.

The Bookworm

Tuesday, March 28,

6.30 pm

50 rmb (includes a drink)

Followed by a performance at 8.30 pm by the Ah-Q Jazz Arkestra with Andrew Collier on drums. Ah-Q performs an eclectic mix of straight-ahead, modern, funk and Latin jazz compositions, including many Ah-Q originals.  Mixing different styles and influences and “stretching” in creative improvisation to “dance on the edge” is the band’s trademark. The Ah-Q Jazz Arkestra has been performing in Beijing since 2003.