Second, with regard to "stock" financial assets, mainly credit assets, the authorities should accelerate the pilot process of asset securitization, improve the relevant laws and regulations, and accelerate the restructuring of commercial banks so as to improve their ability to resist risks. Steadily promoting asset securitization will be conducive to not only the prevention and supervision of "shadow banking" risks, but also to accelerating the business restructuring and adjustment of commercial banks in order to improve their ability to serve the real economy.

The development of shadow banking in China is an outcome of not only the country's unbalanced financial structure and excessive financial regulations, but also financial innovation and market diversification. So we cannot totally repudiate the development of shadow banking in China just because of problems emerging in Western countries' shadow banking systems.

However, because of the congenital defect in the shadow banking system in risk prevention and the lack of supervision, the rapid development of shadow banking in China in recent years has resulted in mounting potential systematic risks. Compared with the excessive innovation and development of Western shadow banking, the problems in China's shadow banking system lie in institutional problems, such as excessive financial regulation and the lagging behind of financial and legal framework reforms.

Relevant laws and regulations should be established and improved to unify supervision rules, loosen financial regulation, normalize shadow banking activities and defuse potential risks. The relevant authorities should start financial legislation and modification, filling in the legal gaps.

China's reforms have lagged behind the development of its financial system, and the environment is not conducive to preventing and eliminating financial risks and maintaining the health and sustainable development of the financial system. From an international perspective, integrated financial management has become the mainstream for the development of international financial systems, and the rapid development of integrated financial management in China can only be achieved on the premise of reforms and remodeling of the financial regulatory system and legislative system.

This article is from a paper by the research group of the Financial Research Institute affiliated with the Development Research Center of the State Council. It first appeared in the China Economic Observer magazine.