China's Shadow Lending Boom

Over the past three years, shadow lending in China has evolved from small and relatively isolated informal loan markets of coastal commercial hubs such as Wenzhou into a critical driver of credit growth and economic activity nationwide. The rise and future trajectory of shadow lending must be understood within the context of two other processes. First is the central government's struggle to restabilize the state-owned banking sector by reining in official lending to property markets following the 2009-2010 stimulus package. Second is Beijing's ongoing effort to bring shadow lending under the control — however unofficially — of those same state-owned banks. In this sense, the evolution of shadow lending reflects the Communist Party's deeper struggle to balance the imperative of economic growth against the need for financial and social stability.