Three Paradoxes of Shadow Banking : Regulatory Purpose, Regulatory Tools and Regulatory Impact – The Case of China

While the banking sector in Western economies had been heavily hit by the latest financial crisis, the banking sector in China seems to perform well. Nevertheless, as the shadow banking system is said to have been one of a variety of causes for the current financial crisis, it also exists in China and the situation has turned worse more recently. The shadow banking sector is often weakly and/or ineffectively regulated, yet the growth of the sector is thought to pose risks to financial stability. This article attempts to look into the shadow banking system in the Chinese context by discussing three paradoxes of shadow banking, which can also be seen in Western context when it comes to analyzing shadow banking and its regulation. These three paradoxes indicate the complex and dynamic interconnections between the regular and shadow banking sectors and justify further and deeper study of shadow banking, wherever the global and national regulators try to avoid new financial crisis