Shadow banking has grown quickly in China, driven by regulatory arbitrage and the growing role of non-bank financial institutions in the financial sector. In this episode of Pacific Exchanges, we sat down with our colleague Cindy Li to discuss her recent paper on shadow banking in China.

Some of the key takeaways from our conversation with Cindy include:

• Shadow banking in China differs significantly from shadow banking in the U.S. and other advanced economies.

• Chinese shadow banking has evolved significantly in recent years in response to actions by financial regulators.

• Differentiating between financial innovation and shadow banking is often difficult.

• Wealth management products are a popular investment for individual investors in China, but they come with significant potential risks.

• Shadow banking in China is set to continue growing in size and complexity.

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.