Loans from Banks and loans from Shadow Banks in China are in close synchronicity over the years — one rises while the other falls and vice versa. It is like a well-choreographed dance. This allows for a dual money supply system. When the central bank wants commercial bank loan growth to fall, it allows riskier shadow loans to rise and vice versa.

This is extremely clever way to manage the money supply to the real economy, smoothing out the ups and downs and creating a reliable stability of money stock and money supply. China does not have a large domestic bond market. Thus capital does not get caught up in the round robin of funding governmental, municipal and corporate bond issuance.