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Risks in China’s financial system

Song, Zheng (Michael) and Wei Xiong

No 1/2018, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

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.

JEL-codes: E02 G01 (search for similar items in EconPapers)
Date: 2018-01-17
New Economics Papers: this item is included in nep-cna, nep-fdg, nep-mac, nep-rmg and nep-tra
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Published in Published in Annual Review of Financial Economics, Vol. 10, 2018, 261-286

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