Networking topography and default contagion in China’s financial system

Jens Fittje and Helmut Wagner

No 17/2020, CEAMeS Discussion Paper Series from University of Hagen, Center for East Asia Macro-economic Studies (CEAMeS)

Abstract: The topography of China's financial network is unique. Is it also uniquely robust to contagion? We explore this question using network theory. We find that networks that are more concentrated are less fragile when connectivity is low. However, they remain in a robust-yet-fragile state longer than decentralized networks, when connectivity is increased. We implement Chinese characteristics into our model and simulate it numerically. The simulations show, that the large state-controlled banks act as effective stop-gaps for contagion, which makes the Chinese network relatively robust. This robustness is significantly reduced, if a significant share of the smaller banks are high-risk institutions.

Date: 2020
New Economics Papers: this item is included in nep-ban, nep-cmp, nep-cna, nep-net and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ceames:172020

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