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Systemic risk in the Chinese banking sector
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The resilience of the Chinese banking system has been a subject of scrutiny over the past decade due to its individual characteristics, such as concentration, rapid asset growth, importance of shadow banking, opaque interconnectedness of financial firms, and the increased international clout of Chinese banks. The rapid expansion of the Chinese stock market poses opportunities and risks for international investors and greatly affects the performance of emerging markets, as benchmarked by common indices such as the MSCI EM.
In our paper, we shift focus from the largest, state-owned, and globally important banks, to the relatively smaller financial institutions and examine whether they contribute significantly to the systemic risk and interconnectedness of the Chinese banking sector. We also examine if three often-discussed sources of fragility increased housing prices, economic policy uncertainty, and shadow banking contribute to the