A Guide to China’s $10 Trillion Shadow-Banking Maze

Shadow banking in China has ballooned into a $10 trillion ecosystem which connects thousands of financial institutions with companies, local governments and hundreds of millions of households. The practice is now at the center of a Chinese government-led regulatory crackdown aimed at defusing financial risks that threaten the wider economy. Unlike in the U.S., traditional commercial banks drive shadow banking, or unregulated lending, in China. That’s because the banks have been able to keep shadow-banking assets off their balance sheets, thereby sidestepping regulatory constraints on lending. So what exactly makes up China’s giant shadow-banking network, the fastest-growing among major economies? Here’s a glossary:

The largest funding source for shadow loans, these bear little resemblance to the investments offered by fund managers in London or New York. AMPs are effectively high-yielding deposit accounts offered by banks, brokerages and other financial firms to raise funding from companies, households and even each other. Because of the widespread perception that they’re guaranteed by the issuers, and that the government stands behind China’s financial institutions, AMP issuance has exploded, reaching 100 trillion yuan ($16 trillion) in 2017. Not all of that flows into shadow banking, but as issuers try to match the over-sized yields promised to depositors, a good-sized chunk has gone into funding loans to weaker borrowers and speculative areas such as real estate and stocks.