Risks in China's financial system

Zheng Michael Song, Wei Xiong

Research output: Contribution to journalReview article

13 Scopus citations

Abstract

Motivated by growing concerns about the risks and instability of China's financial system, this article reviews several commonly perceived financial risks and discusses their roots in China's politico-economic institutions. We emphasize the need to evaluate these risks within China's unique economic and financial systems, in which the state and nonstate sectors coexist and the financial system serves as a key tool of the government to fund its economic policies. Overall, we argue that (a) a financial crisis is unlikely to happen in the near future and (b) the ultimate risk lies with China's economic growth, as a vicious circle of distortions in the financial system lowers the efficiency of capital allocation and economic growth and will eventually exacerbate financial risks in the long run.

Original languageEnglish (US)
Pages (from-to)261-286
Number of pages26
JournalAnnual Review of Financial Economics
Volume10
DOIs
StatePublished - Nov 1 2018

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Chinese economy
  • debt risk
  • housing risk
  • policy risk
  • productivity

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