ISSN: 2225-8329
Open access
Bank-issued Wealth Management Products (WMPs) are perceived as the largest part of China’s shadow banking system and has undergone dramatical growth during the past decade. This study uses a sample of 46 commercial banks and adopts two-step system GMM to investigate the determinants for the rise of WMPs from 2015 to 2021 in China. The results show that WMPs, as the essential deposit substitution and off-balance-sheet activities of commercial banks, are mainly driven by the motivation to satisfy credit expansion and circumvent regulatory requirements on liquidity and capital adequacy. The results demonstrate that regulatory arbitrage is the primary driving of shadow banking activities. Besides, this study further explores the heterogeneity between nationwide commercial banks (NCBs) and local commercial banks (LCBs) on the motivation to issue WMPs. Comparing with NCBs, LCBs tend to issue more WMPs to raise funds and relieve their supervisory pressure.
Adrian, T., & Ashcraft, A. B. (2016). Shadow banking: a review of the literature. Banking Crises: Perspectives from The New Palgrave Dictionary, 282-315.
Acharya, V., Qian, J., Su, Y., & Yang, Z. (2020). In the Shadow of Banks: Wealth Management Products and Issuing Banks' Risks in China (No. 14957). CEPR Discussion Papers.
Acharya, V. V., Schnabl, P., & Suarez, G. (2013). Securitization without risk transfer. Journal of Financial economics, 107(3), 515-536.
Allen, F., & Gu, X. (2021). Shadow banking in China compared to other countries. The Manchester School, 89(5), 407-419.
Arora, R. U., & Zhang, Q. (2019). Banking in the shadows: a comparative study of China and India. Australian Economic History Review, 59(1), 103-131.
Bai, C. E., Hsieh, C. T., & Song, Z. (2016). The long shadow of China’s fiscal expansion. Brookings Papers on Economic Activity, 129-165.
Borst, N. (2013). Shadow deposits as a source of financial instability: Lessons from the American experience for China. Policy Brief Peterson Institute for International Economics, 13.
Cai, J., García-Herrero, A., Li, F., & Le, X. (2019). The regulatory arbitrage and window dressing in shadow banking: the example of Chinese wealth management product. Economic and Political Studies, 7(3), 314-336.
Chan, S., & Ji, Y. (2020). Do interest rate liberalization and fintech mix? Impact on shadow deposits in China. China & World Economy, 28(1), 4-22.
Chen, Z., He, Z., & Liu, C. (2020). The financing of local government in China: Stimulus loan wanes and shadow banking waxes. Journal of Financial Economics, 137(1), 42-71.
Collier, A. (2017). Shadow banking and the rise of capitalism in China. Springer.
Dang, T. V., Liu, L., Wang, H., & Yao, A. (2019). Shadow Banking Modes: The Chinese versus US System. Available at SSRN 3491955.
Du, J., Li, C., & Wang, Y. (2023). Shadow banking of non-financial firms: Arbitrage between formal and informal credit markets in China. Journal of Financial Intermediation, 55, 101032.
Ehlers, T., Kong, S., & Zhu, F. (2018). Mapping shadow banking in China: structure and dynamics. BIS Working Papers No.701.
Feng, X., Lütkebohmert, E., & Xiao, Y. (2022). Wealth management products, banking competition, and stability: Evidence from China. Journal of Economic Dynamics and Control, 137, 104346.
Hachem, K. (2018). Shadow banking in China. Annual review of financial economics, 10, 287-308.
Huang, Y., Zhou, B., & Liu, L. (2022). Regulatory arbitrage, bank opacity and risk taking in Chinese shadow banking from the perspective of wealth management products. China Economic Quarterly International, 2(1), 1-14.
Irani, R. M., Iyer, R., Meisenzahl, R. R., & Peydro, J. L. (2020). The rise of shadow banking: Evidence from capital regulation. Available at SSRN 3166219.
Lasak, P. (2015). Regulatory responses to the Chinese shadow banking development. Jagiellonian Journal of Management, 1(4), 305-317.
Liang, Y. (2016). Inside shadow banking in China: Credit driven growth vs. financial stability. Journal of economic issues, 50(2), 461-470.
Liao, P. (2020). Interaction between non-standard debt and wealth management products in China. Journal of Applied Finance and Banking, 10(5), 149-166.
Liu, A., & Shim, I. (2024). Shadow loans and regulatory arbitrage: evidence from China. Journal of Banking & Finance, 107091.
Luo, R., Fang, H., Liu, J., & Zhao, S. (2019). Maturity mismatch and incentives: Evidence from bank issued wealth management products in China. Journal of Banking & Finance, 107, 105615.
Ouyang, A. Y., & Wang, J. (2022). Shadow banking, macroprudential policy, and bank stability: Evidence from China’s wealth management product market. Journal of Asian Economics, 78, 101424.
Qi, C. (2016). An Analysis of Local Government Debt and Shadow Banking in China from A Minskyan Perspective (Doctoral dissertation, University of Newcastle Australia).
Schwarcz, S. L. (2011). Regulating Shadow Banking: Inaugural Address for the Inaugural Symposium of the Review of Banking & Financial Law. Rev. Banking & Fin. L., 31, 619.
Shah, S. M. R., Fu, Q., Abbas, G., & Arshad, M. U. (2023). Shadow banking from China's perspective: an empirical analysis of bank-issued wealth management products. Journal of Economic and Administrative Sciences, 39(1), 1-24.
Shah, S. M. R., Lu, Y., Fu, Q., Ishfaq, M., & Abbas, G. (2021). Interaction between wealth management products and bank deposits: evidence from China's shadow banking. International Journal of Bank Marketing, 40(1), 154-171.
Shen, W. (2015). Wealth Management Products in the Context of China’s Shadow Banking: Systemic Risks, Consumer Protection and Regulatory Instruments. Asia Pacific Law Review, 23(1), 91-123.
Shen, W. (2016). Shadow banking in China: Risk, regulation and policy. Edward Elgar Publishing.
Sheng, A., & Soon, N. C. (2015). Bringing shadow banking into the light: Opportunity for financial reform in China. Fung Global Institute Asian Perspectives Global Issues.
Sun, G. (2019). China's Shadow Banking: Bank's Shadow and Traditional Shadow Banking. BIS Working Papers No. 822.
Tan, S. Y., Li, Q. L., & Liang, L. P. (2017). The Hand Book of Wealth Management Products: Insight into the Operation of Bank-issued Wealth Management Products. Shanghai University of Finance & Economics Press. (in Chinese).
Wang, H., Wang, H., Wang, L., & Zhou, H. (2019). Shadow banking: China's dual-track interest rate liberalization. Available at SSRN 2606081.
Wang, Z., Zhao, H., & Li, L. (2022). The positive side of bank wealth management products: Evidence from bank lending rate. Journal of Financial Stability, 58, 100950.
Yang, L., van Wijnbergen, S., Qi, X., & Yi, Y. (2019). Chinese shadow banking, financial regulation and effectiveness of monetary policy. Pacific-Basin Finance Journal, 57, 101169.
Zeng, H. J., Wei, J. H. & Chen, M. H. (2019). The impacts and evaluation of wealth management products on the performance of banks under the new rules of asset management-an empirical study based on 15 listed banks. Journal of Tianjin college of commerce, 7(4), 28-42.
Zhang, J. (2020). Shadow banking and optimal capital requirements. Review of Economic Dynamics, 38, 296-325.
Zhou, S., & Tewari, D. D. (2019). Shadow banking, risk-taking and monetary policy in emerging economies: A panel cointegration approach. Cogent Economics & Finance, 7(1), 1636508.
Zhou, S., & Dev, D. T. (2020). The impact of shadow banking on economic growth: evidence from cross country data (2006–2018). Journal of International Commerce, Economics and Policy, 11(03), 2050010.
(Kang et al., 2024)
Kang, K., Ashhari, Z. M., Yahya, M. H. D. H., & Ni, S. W. (2024). Regulatory Arbitrage, Credit Expansion and the Development of Shadow Banking in China- from the Perspective of Bank-issued Wealth Management Products. International Journal of Academic Research in Accounting Finance and Management Sciences, 14(1), 382–399.
Copyright: © 2024 The Author(s)
Published by HRMARS (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seenavc at: http://creativecommons.org/licences/by/4.0/legalcode