China Center Research Brief: Appraising China's Financial Sector Risk in 2018

Data show that financial system risks are being tamped down by regulators in China, albeit slowly. Juxtaposed to this good news—and, in fact, a consequence of it—other indicators suggest that corporate default risks in China are on the rise. These rising default risks are mostly concentrated in local government financial vehicles (LGFVs) and the state-owned enterprises (SOEs) orbiting them. MNCs need to pay close attention to monetary policy developments in 2018. A wave of corporate defaults would necessarily cause significant volatility and triangular debt impacts to supply chains and distribution channels, but ultimately would be good for business.