The impact of shadow banking in China has been relatively recent. It grew from only several hundred billions of dollars in total assets under management in 2008 to more than $9 trillion in 2014.
At the centre have been so-called ‘investment trusts’, which grew five-fold between 2010 and 2013 and account for about a quarter of the total. Trusts provide credit (and therefore generate debt) to local governments for infrastructure spending, to industrial and commercial enterprises, to real-estate and financial institutions, and to investors in stock and bond markets. Local government debt in particular has risen by more than 70 per cent since 2010. In other words, shadow bank credit has gone mostly to those sectors of China’s economy where debt has accelerated fastest and produced financial bubbles.
