China’s shadow banking assets have surpassed 40 percent of the country’s gross domestic product, raising potential risks rising in the financial system, China.com reported Monday, citing Wu Xiaoling, deputy director of the Financial and Economic Affairs Committee.
A lack of efficient supervision and effective legal framework has led to chaos in the shadow banking market. Investors are reluctant to bear risks while expecting high returns, while institutions promise to honor their products in a rigid way, Wu was quoted as saying.
Shadow banking can be viewed as a financial intermediary outside the traditional banking system, which includes entities such as hedge funds, private equity funds, money market funds, structured investment vehicles, as well as non-bank financial institutions like trusts, micro-credit companies and wealth management firms.
Wu has urged to improve the legal framework and regulatory regime to ensure a healthy development of shadow banking, which could be viewed as direct financing to some extent and a supplement to bank loans, the report said.
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