(Yicai Global) July 27 -- One of the prominent scholars advising China's economy policy-makers said the regulatory arbitrage was the nature of many shadow banks in China. Their activities off the balance sheet, outside the market, and on the internet have drawn regulator's attention, making them the focus of the resulting regulation enforcement.

"If the problem lies in the mechanism of the regulatory arbitrage, the adjustment of the regulation mechanism will be vital," Li Yang, an academic with Chinese Academy of Social Sciences, said during a forum on July 25.

Li Yang also pointed out that many so-called shadow banks in China were just banks in the common sense of the word. The policies and regulatory framework for shadow banks in foreign countries are based on how they define "shadow banks" and their own experience. "Since we see such banks differently in China, we cannot indiscriminately use the foreign theories and regulatory framework about them."

Lack of coordination in the regulation system is to blame for the current chaos in the finance industry, Li said. As the system is comprised of the framework and various guidelines, the problematic guidelines could eventually yield unexpected results in financial regulation. In this case, we need detailed analysis before we could offer helpful suggestions to the regulation authority, he pointed out.

China should take more comprehensive quantity tracking indicators and methods, apart from analyzing the financial situation from the perspective of liability and currency, in order to maintain a secure and stable financial industry, Li added.