Risks in China's Financial System

40 Pages Posted: 17 Jan 2018 Last revised: 7 Aug 2019

See all articles by Zheng (Michael) Song

Zheng (Michael) Song

City University of Hong Kong (CityUHK)

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: January 17, 2018

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 non-state sectors coexist and the financial system serves as a key tool of the government to fund its economic policies. Overall, we argue that: (1) financial crisis is unlikely to happen in the near future, and (2) 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.

Keywords: Chinese economy, debt risk, housing risk, policy risk, productivity

JEL Classification: E02, G01

Suggested Citation

Song, Zheng (Michael) and Xiong, Wei, Risks in China's Financial System (January 17, 2018). BOFIT Discussion Paper No. 1/2018, Available at SSRN: https://ssrn.com/abstract=3103788

Zheng (Michael) Song (Contact Author)

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
151
Abstract Views
685
rank
205,311
PlumX Metrics