The fundamental reason for the extreme leverage today in China’s banks, enterprises and the state itself is found in the decentralized fiscal arrangements of highly self-reliant local governments. This problem has been compounded by the excessive stimulus lending over the past decade. As a result Beijing has promoted the creation of an extensive shadow banking system designed to protect the stability of the major state banks. Stepping back this has led to the state’s growing leverage. This presentation focuses on the impact of the shadow banking system on the state’s finances and compares the costs of China’s response to the global financial crisis with the US response.
Carl Walter joins the Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC) as visiting scholar with the China Program for the 2021-2022 academic year. Prior to coming to APARC, he served as independent, non-executive Director at the China Construction Bank. He was also previously a visiting scholar with APARC during the winter and spring terms of the 2012–13 academic year after a career in banking spent largely in China.
