The Chinese government has made financial risk control at commercial banks a priority for the last couple years, and this year it is trying even harder. 

During the first week of 2018, China’s regulators issued a broad swath of new policies all aimed at directing the commercial banks away from shadow banking and back to their real business.

Chinese regulators have not defined shadow banking very clearly, but the term usually refers to financial services similar to those of traditional commercial banks, but operate outside the bounds of normal financial regulations. 

These services include off-balance sheet activities at commercial banks and also loan services provided by online lending companies. 

It's hard to precisely gauge the size of China's shadow banking sector, but everyone agrees that it is huge.

Some estimates said that it had grown to as much as eight trillion yuan (around 1.26 trillion US dollars) as of the first half of last year. 

That much unregulated money in the economy raises fears that it has the potential to destabilize the entire financial system.

“The size of the shadow banking sector now accounts for 40 percent of the total assets of the banking business, though the number is not definite. But if it's too much it could create disturbances. In some specific areas about which the regulators are concerned, borrowers can still get money through shadow banking, and that creates financial risks to individuals and even to the whole financial system,” said Yu Baicheng, director at Wangdaizhijia Research Institute.

One of the new regulations bans commercial banks from participating in the decision-making of entrusted lending and providing guarantees of any kind, according to the China Banking Regulatory Commission. 

The government has also decided to crack down on the unregulated business of online lenders.

“Supervision is now targeting all areas. We know that it's hard to estimate the amount of money managed by small-loan companies and Internet finance firms. But the regulations are becoming more and more specific. The government is looking at risks in even the smallest areas,” said Zhao Yarui, senior researcher at Bank of Communications.

China's efforts to control shadow banking are acknowledged internationally. A statement released by the International Monetary Fund said China’s banking sector’s long-term development will benefit from the expanded financial regulations.