The Credit Creation Of China’s Shadow Banking And Its Impact On Monetary Policy

In the past few decades, the nature of the U.S. financial intermediation have changed deeply, which mainly performance for the credit mode of traditional commercial bank for the new credit mode:in the traditional credit mode of commercial bank, commercial banks mainly accept money deposits, issue loans and hold loans. The focus of their concern is the credit risk management and how to change heterogeneous assets into homogeneous debt. While the new credit mode is the securitization of financing, this huge change of the U.S. credit markets makes the traditional commercial bank "retail and hold" mode change into the new " products creation and wholesale" mode, and makes the global credit system as the leading mode evolved from a traditional bank to similar to a "shadow banking system" of financial market mode which conceals behind the securities financing.The shadow banking system don’t have the organizational structure of traditional commercial banks, but plays a traditional commercial banking functions, such a growing system makes the structure of the U.S. and also global financial system undergone a qualitative change:the role of traditional commercial banking system continues to decline, the systemic importance of the shadow banking system continues to strengthen. However, the rapid development of the shadow banking system in the global financial markets not only brings unlimited prosperity, but also accumulated huge systemic risk. Ultimately, the inherent vulnerability of the shadow banking system as well as external factors such as lack of supervision resulted in the crisis, quickly swept the world, spread to the real economy, and made the global economy fallen into recession.In the year2008, to deal with the adverse effects of the subprime crisis4trillion yuan economic stimulus plan being introduced by Chinese government, and later a series of measures to enable the country to maintain growth led to overheating momentum of macroeconomic. By the end of2009China’s macroeconomic policy had swerve and the control efforts were too fierce, leading to funds shortage of the real economy, and the funding gap of the regulation of the main industry and a large number of SMEs sector is particularly serious. With the introduction of tightening macroeconomic policies, strong demand for funds of the real economy makes the total amount of other non-traditional financing which commercial banks off-balance sheet activities, private equity funds and trust products are as represented and characterized by circumvent the credit scale, commercial bank loan ratio restrictions to be on the rise. Along with the increasing of a variety of non-traditional way of the total amount of financing is an accumulation and exposure of risk. For a time everyone began to concern the stability of China’domestic financial system in future, and the concept of "Chinese-style shadow banks" was rampant. Even there was a view that China’s shadow banking system might lead to the next "Subprime crisis."Shadow banks were the product of constant innovation driven by demand and financial regulation. With the rapid development of financial liberalization and financial innovation, various securitized products, financial derivatives surge in large numbers. There are a growing number holding the view that it is part of the "Broad liquidity" that shadow banking system created. In fact the limits of the traditional sense of liquidity are greatly widened. As monetary policy is concerned, this Broad liquidity is out of direct control of a nation’s central bank, and has an impact on both the theory and practice of monetary policy. Compared with developed countries, the development of China’s shadow banking is still in its infancy. China’s shadow banking, mainly engaged in business similar to accepting money deposits and granting loans, which direct financing ratio is still low. It is very different with developed countries’shadow banking which wholesale financing and asset-backed securities is the representative of the business mode. But in fact the emerging of this new financing mode and its credit creation function has posed challenges for China’s current monetary policy. This paper attempts to start from the operating mechanism of a typical representative of the shadow banking, to analyze their credit creation function, then in combination with the implementation particularity of China’s monetary policy, to research challenges for monetary policy. Last, gives some possible policy recommendations on the basis of the content mentioned above.This paper used two methods to study:one was summarization, and the other was comparative analysis. This paper was divided into five parts:the first chapter is the introduction of the article, explains the background and significance of current research, ideas and methods, the main content and framework, as well as research contributions and shortcomings; the second part is the shadow banking overview, first the definition of western countries’ shadow banking, its characteristics and differences between traditional commercial banks were summarized; then combined with China’s situation, investigating the definition, causes, characteristics of China’s shadow banking, and then the difference with the western countries’ shadow banks. The third part was the theme. First, a brief introduction of the credit creation mode of traditional commercial bank system; followed the U.S. example to introduce credit creation mode of western developed countries’the shadow banking system; Finally, in combination with the definition of shadow banking, this paper focused on the credit creation of China’s shadow banking. The fourth part was the topic of the article. First under the dual-track interest rates condition particularity of monetary policy implementation was introduced; then combined contents of the third part, this paper investigated the challenge of shadow banking credit creation for China’s monetary policy.The fifth part is the last part of the article, some policy recommendations based on the foregoing theory was given.The main conclusions of this paper are that shadow banking system has similar credit creation function with commercial banks, and its credit creation should be monitored. The shadow banking system only took on part of the financing function of commercial banks. Its credit creation mechanism is very simple. And complex credit chain was not formed. Last, shadow banking system will have an effect on the effectiveness of monetary policy target, undermine the effectiveness of the role of monetary policy instruments, and affect the smooth of transmission mechanism of monetary policy.The shortcomings of this article are as follows. First, the data was difficult to obtain, the scale was difficult to add up. Second, because of lack of supporting data, it is a pity that the impact of the credit creation of the shadow banking system on monetary policy was difficult to carry out quantitative analysis.