Shadow banking in China plays an important role in China’s overall financial system, but assessments of its impact vary widely. In this paper, Sarah Hsu describes how shadow banking is viewed by Chinese government officials and industry experts as overly risky and potentially undermining the formal financial system. But shadow banks are filling a gap in the provision of finance to particular sectors and smaller firms. Hsu analyzes the impact of government regulation on the shadow banking and non-shadow banking financial sector (i.e., the stock market) and proposes ways to strengthen the regulations of shadow banks to improve access to credit.