From shadow banking to digital financial inclusion: China’s rise and the politics of epistemic contestation within the Financial Stability Board

Abstract

Global financial standard-setting has been the exclusive domain of advanced economies for decades. Following the 2008–09 crisis, China and other emerging markets and developing economies obtained formal membership in the forums of global financial regulatory governance. Has their incorporation changed global regulatory politics? We analyze the epistemic contestation, bargaining, and persuasion surrounding the latest item on the financial regulatory reform agenda of the G20 and the Financial Stability Board: non-bank credit intermediation. Our study identifies three groups of norm entrepreneurs with different epistemic backgrounds that advance partially overlapping and competing interpretative frames of how to define, understand, and regulate this amorphous financial (non-)sector. Regulators from Western advanced economies took the lead in defining non-bank finance as stability-threatening shadow banking, successfully asserting epistemic authority against alternative frames advanced by China and other developing countries that include developmental prerogatives. Confronted with this impasse, Chinese authorities have sought to re-frame non-bank finance at the G20 under the label of digital financial inclusion. Our findings challenge and refine salient theories of global regulatory politics and underscore the importance of epistemic concerns for debates over the consequences of the entry of new actors from the ‘Global South’ into the core institutions of global financial governance.

Keywords:

• China
• financial inclusion
• Financial Stability Board
• fintech
• shadow banking
• financial regulation
• government networks
• epistemic authority

Acknowledgements

Different versions of this paper have been presented at the University of Amsterdam, the School of Government at Oxford University, the International Studies Association Annual Conference, and the CASH Innovation Dialogue at UC Irvine. We are grateful to the Institute of New Structural Economics at Peking University and the Fudan Development Institute in Shanghai for hosting us during several waves of field research. We thank Andrew Walter, Emily Jones, Chen Zheng, Zheng Liansheng, Zhang Ming, Daniel Mügge, Zheng Xingchen, Xu Jiajun, and workshop and conference participants for their insightful feedback on earlier drafts. We are especially grateful to our interview partners for sharing their time and knowledge with us. All mistakes and omissions remain our responsibility.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

This research has been made possible with the generous support of the UK Economic and Social Research Council (Grants ES/N001982/1 and ES/L012375/1) and the John Fell Fund of Oxford University Press (Grant 162/073).

Notes on contributors

Peter Knaack

Peter Knaack is Adjunct Professorial Lecturer at the School of International Service at American University. He also consults for the World Bank. Peter’s research focuses on global financial governance, financial inclusion, and fintech.

Julian Gruin

Julian Gruin is an Associate Professor of Transnational Governance at the University of Amsterdam. His monograph Communists Constructing Capitalism: State, Market, and the Party in China’s Financial Reform was published in 2019. He is currently researching digital financialization in China and the epistemology of digital markets.