Shadow Banking in China C P Chandrasekhar and Jayati Ghosh

On October 10, the Chinese government announced that it will increase its stakes in the four largest commercial banks, which are already largely public-owned. The move is designed to ''support the healthy operations and development of key state-owned financial institutions and stabilise the share prices of state-owned commercial banks''. But why was this move considered necessary at all? In the period just before this, investors were dumping Chinese bank shares, anticipating a slowing down not just of the economy as a whole, but in particular the property market, which had experienced a bubble of massive proportions. But the underlying concern…