Shadow Banking Threatens China's Economy—but What Is It, Exactly?

Last week, the Shanghai interbank offered rate (Shibor), China's once-anonymous version of London's LIBOR, made news around the world when it suddenly spiked at all time high. Expected to lower this rate by injecting cash into struggling Chinese banks, the People's Bank of China (the country's equivalent of the Fed) instead did nothing, leading to speculation that China's leaders were finally prepared to tackle the economy's overheating problem. In the process, the media appears to have finally taken notice of the potential dangers that lurk within the byzantine industry that is Chinese finance. Reviewing the headlines, a series of arcane, sinister terms leap out: Off-balance sheet lending. Inter-corporate finance. And, most prominently, shadow banking.