Shadow Banking Modes : The Chinese versus US System

Using newly collected data this paper shows that Chinese shadow banking is different from the US counterpart in two important dimensions. The Chinese system creates information insensitive investment products by implicit guarantee rather than financial engineering and operates on a banking platform instead of capital markets. The theoretical model analyses why Chinese shadow banking is bank-centric and discusses the role of the Chinese government and welfare implications. This paper also formalizes the conceptual differences between implicit guarantee and securitization as well as asymmetric perception of implicit guarantee and neglected risks