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How Service Sector Needs And Shadow Banking Are Reshaping Chinese Capital Markets

By Alan Lok, CFA

In my recent post on "The Impact of Population Dynamics on the Chinese Capital Markets," we examined the effect of demographic shift on the Chinese economy and the likely problems it will pose. In this post, we will explore two other pressing issues within the Chinese economy - an underdeveloped service sector and the rise of shadow banking.

Service Sector Shortage

It is well known in China that its service sector is in a severe supply bottleneck. Individuals and businesses in China have difficulty obtaining services. For individuals these services include medical care and enrolling their kids in school; SMEs (small and medium enterprises) face such challenges as obtaining bank funding.

The culprit? A bureaucratic structure that ranks GDP (gross domestic product) above standard of living in its performance rating of government officers responsible for these measures in their jurisdiction. Traditionally, government officials at… Read More …