Shadow Banking
Relations between United States and China have been analyzed as rocky, hostile, and downright unfriendly by numerous political spectators. Is this really true? How much weight should we put on the words of the media? Although major events such as China’s lending money to the United States have given way to obvious tensions between the two nations and their views of where they stand on the global scale, it is important to recognize that not everything is what it seems or what is depicted. A recent Gallup poll shows an increasing number of Americans who view China as “very favorable” or “mostly favorable”. In a recent meeting between Chinese and American officials, both China and the U.S. made an agreement to work together to advance each country’s economic and political gains. So which is it, friends or enemies? In this week’s piece, I will discuss how both U.S. and China’s increased engagement in shadow banking in the last few years has both negatively and positively impacted their relations with one another in different ways; the nations’ relations are ever changing and because of this, it is not enough evidence to label United States and China. as friends or enemies.
China’s methods of shadow banking has allowed it to soar to economic prosperity, yet China’s economic growth is not enough to put it on the first-world tier. Shadow banking involves the creation of credit in the global financial system through use of financial institutions that are not subject to regulation by the government or state. In essence, most of the financial institutions used in shadow banking are third parties who engage in unregulated activities for the benefit of both the public and private sectors. Although the International Monetary Fund, the IMF, now monitors these activities, China’s personal definition of shadow banking is so broad that the streams of credit and money flow aren’t all monitored by the IMF. China’s definition of shadow banking involves all activities “outside the regular banking system” which translates to: not everything can be accurately tracked. Recently, the United States has called to attention these transactions and has propositioned these transactions be tracked and logged. China did not take this request seriously.
Although both the United States and China utilizes shadow banking, U.S. seems to be more upfront about this due to the fact that the amounts of credit created by the methods contribute to over 20% of credit flowing within the country. China, on the other hand, waves off the severity of these transactions and the government turns a blind eye. These contrasts in how the nations are handling shadow banking positively impacts both nations because they honor each nation’s different ways of going about matters. Neither nation is trying to impose anything on the other and the method is working effectively, actualizing each nation’s agenda and political-economic needs.
Nevertheless, these different ways of regarding shadow banking and its effects to the global financial system represents a serious issue that should be addressed in order to achieve global transparency regarding monetary funds. In this sense, China’s choice to ignore is distressing the United States’ value of transparency and we can see their financial relationship is being strained. Is a strained relationship with the United States a weighty enough tradeoff for China’s economic growth that in turn, impacts the world? After analyzing shadow banking, China, in my opinion, should make more of an effort to expose their shadow banking activities in order to maintain a stable relation with United States. At the same time, China should only expose as much as they are willing to expose at their own discretion that they see fit for aiding global financial transactions and trading. More exposure on both the U.S. and China’s part might further damage relations. Not every action is necessary.
Works Cited
Canuto, Otaviano. "Shadow Banking in China: A Morphing Target." The Huffington Post. TheHuffingtonPost.com. Web. 09 Mar. 2016.
"China." Gallup.com. Web. 09 Mar. 2016.
"China and America: We Are Not Enemies - The Globalist." The Globalist. 2014. Web. 09 Mar. 2016.
"The Rise and Fall of Shadow Banking in China." The Diplomat. Web. 09 Mar. 2016.
