Chen, D. and Deakin, S. (2021) When formal finance meets the informal: the case of Wenzhou. Journal of Banking Regulation, 22 (3). pp. 208-218. ISSN 1745-6452
Abstract
We examine the causes of the financial crisis of 2011 in the Chinese city of Wenzhou. While the crisis of 2011 has been attributed to weaknesses in the system of informal finance, including predatory interest rates, we suggest that the roots of the failure lay in the way that the formal and informal systems became intertwined in the period following the global financial crisis of 2008 and the expansionary monetary policy initiated by the Chinese authorities to counter its effects. We explore the effects of the over-supply of formal credit in this period and the encouragement of group lending, a practice relatively unknown prior to 2008, and which magnified the effects of the crisis. We suggest that the lesson to draw from Wenzhou is not that informal finance is inherently more instable or inefficient than formal finance, but that encounters between formal and informal finance can trigger instabilities in both.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2020 Springer Nature Limited. This is an author-produced version of a paper subsequently published in Journal of Banking Regulation. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Informal finance; Formal credit; Law and finance; Wenzhou crisis; Monetary policy; Group lending |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > School of Law (Sheffield) |
Funding Information: | Funder Grant number ECONOMIC & SOCIAL RESEARCH COUNCIL ES/P004091/1 |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 16 Dec 2020 16:39 |
Last Modified: | 02 Feb 2022 08:41 |
Status: | Published |
Publisher: | Springer Nature |
Refereed: | Yes |
Identification Number: | 10.1057/s41261-020-00139-9 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:169107 |