china was once known as the fastest growing economy in the world. Today he is not at the top in this list, but
still he is at the center of discussion. The reason behind that is shadow banking. Today, china is the second
largest economy in the world. America is at number-1. Today India’s ranking is 5th. The world’s biggest
economists are worried about China. He believes that the impact of the ongoing crisis in china can be seen in
other countries as well. After all, what is the meaning of shadow banking, which has become a matter of
concern for everyone. In today’s story we will try to know about it.
What is shadow banking?
shadow banking has affected the real estate sector the most. shadow banking means that a non-banking
financial institution i.e. NBFC gives loans by bypassing the rules of the banking system. Banks give this loan on
the basis of conditions decided by them. That means they do not follow all the rules set by the government and
the central bank. By giving loan without following the rules, the bank gets into trouble.
shadow banking was first used in America. When in 2007, the banking companies there started giving loans on
easy terms. Which played a big role in the recession of 2008. shadow banking directly affects the economy.
Because when the banking system of a country becomes weak, its economy collapses. Many times banking
companies go bankrupt.
There is a burden on this sector
Currently, two companies in china seem to be victims of shadow banking. One is Evergrande and the other is
Country Garden. According to the Times report, more than a dozen companies have fallen prey to shadow
banking in the last two decades. China's property sector accounts for one-fourth of its economy. The real estate
sector took loan from the bank due to low terms, now it seems unable to repay the loan. Actually, due to decline
in demand, flats are not being sold, due to which property dealers are not able to return the money to the bank
on time. One of the biggest reasons behind flats not being sold is the rapid increase in flat prices.
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