A Guide to China's $9 Trillion Shadow-Banking Maze

Shadow banking in China is a vast ecosystem which connects thousands of financial institutions with companies, local governments and hundreds of millions of households. Its growth in recent years, fueled by asset management products and peer-to-peer lending, lifted a broad measure of shadow banking assets to an estimated $10 trillion. But then the crackdown came, prompted by a government campaign to tackle risks in the financial industry that might threaten the wider economy. One of the main problems is that regular banks -- unlike in the U.S. -- are major participants, keeping shadow-banking assets off their balance sheets to sidestep regulatory constraints on lending. Already, the shadow-banking tally has dropped to $9 trillion, according to Moody’s Investors Service. 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 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 like real estate and stocks.