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Fire or Ice? Scenarios for China’s Coming Financial Adjustment

Readers of our analyses of China’s financial system, and the funding structures used to keep it going, have asked us to speculate on the shape market events and policy responses could take once business as usual ends. This note summarizes our framework for thinking about such scenarios. We aren’t calling a crisis here, but the risks of a near-term financial market breakdown are sufficiently elevated that it is necessary to think through the likely dynamics if leaders don’t implement correctives urgently.

Posted May 11, 2017
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