Regulations meant to limit the reach of the shadow banking sector are having their biggest impact on the banks in China. I think no one quite understood the extent to which banks were making off-balance sheet loans through shell companies and mysterious investment funds to avoid scrutiny of those loans. A series of new rules make shadow loans much more difficult for banks to do. Some of the shadow loans have moved onto the balance sheets now, painting a less rosy picture of banks’ financial results. Some have moved out of the banking sector entirely.
The shadow banking sector is more than just banks getting around the rules, though. Real estate developers also seem to be steering clear of shadow-bank financing for now, worried about what might happen if authorities catch up with them. In other areas such as investing and trade, though, there are few signs that the stricter rules are reining in shadow-bank loans as intended.