ABSTRACT
The chapter introduces background knowledge regarding the private lending market, including its historical development, operating mechanism, and main characteristics. It provides a brief review of the Chinese financial history in three time periods: ancient and imperial China (pre-1912), the Republic of China era (1912–1949), and the first 30 years of the People’s Republic of China (1949–1978). The chapter examines the revival and latest developments of private lending activities in contemporary China. It describes the supply and demand theory to explain the formation of the private lending market by considering the financing demands from private enterprises and the supply of funds from cash-rich investors. The chapter also examines China’s shadow banking system in detail by looking into its major components, such as trust lending, entrusted lending, and private lending. Trust loans, as structured financing vehicles, have been a major element of the shadow banking system in China. The chapter considers key characteristics of private financing transactions.
