Economics professor researches impacts of shadow banks in China

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Economics professor Yan Liang recently received a $30,294 grant from the Institute for New Economic Thinking to continue her research on shadow banks in China.

With the support of the grant, Liang will spend more than a month in Wenzhou and Guangzhou, China this summer.

“Shadow banks may exert potential risks at both institutional and aggregate levels,” Liang says. “So it is important to investigate what risks they entail and in what specific ways the risks can be disseminated throughout the economy.”

Shadow banks are financial institutions outside the traditional banking system. They operate in a similar matter, but are far less regulated, less backed by the government and more prone to taking risks.

In China, shadow banks account for as much as $US 4.8 trillion of China’s gross domestic product. As there is no consensus among economists as to their causes, impacts and policy implications, Liang hopes her research will help demystify the institutions’ role.

“Given the growing size and significance of these financial institutions, they will have far-reaching impacts on the Chinese economy, and even on the world economy,” Liang says.

While in China, Liang will interview bankers and small- and medium-sized business owners. She will also continue to search databases, as she has since beginning her research last fall. If possible, she also hopes to talk with bank regulators and other policy makers.

Through her studies, Liang hopes to better understand why the number of shadow banks in China is increasing, as well as how policies should be crafted to manage the banks and their effects on the country’s stability and long-term economic growth.

“If policy makers consider the impact, then my research can potentially benefit those who are and will be affected by the shadow banks, including Chinese households and businesses,” Liang says.

Along with contributing to the global economic system, Liang says her research will inform and enrich her teaching and challenge economists to apply the discipline differently.

“I hope my research can inspire students to engage in meaningful and exciting research projects,” she says.

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