How Likely Is a Financial Crisis in China?

How Likely Is a Financial Crisis in China?

It’s a worrying time for the global economy. While the euro area is not yet out of its crisis, and the Fed could trigger an emerging-markets crisis by its imminent rate hike – just remember the “taper tantrum” of 2013 – yet another crisis might happen in China, caused by insolvent shadow banks, bursting asset bubbles, or indebted local governments. The Chinese stock market crash in summer 2015, which sent shock waves around the world, already provided a taste of such a scenario.

What is the likelihood of a financial crisis happening in China, and how would it unfold, domestically and at the global level? Let’s look at China’s main financial risks and efforts to control them, as well as the global effects of a potential crisis in China.

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