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Part of the New Economic Windows book series (NEW) Abstract In 1978 China Financial sector has began a gradual reform process. Within 40 years the country went from a mono-bank model to one composed of hundreds of wholly-owned State banks and joint stock commercial banks. Yet this diversification has the banking landscape has not resolves credit allocation inefficiency. Indeed, whilst SME represent 80 % of the economic output of the country, it is only receiving 20 % of the credit originated by banks. This has spurred the development of shadow banking, an informal and unregulated network of lenders and borrowers....