China's Credit Boom: New Risks Require New Reforms

Policy Brief
October 2013

The Chinese financial system stands at a crossroads. The response to the global financial crisis eroded some of the hard-earned discipline put in place during the 2000s. As a result, significant risks have accumulated, and the financial sector once again appears vulnerable to large-scale credit misallocation and spiraling bad debts. Reducing these risks will take a new wave of concerted action. Absent better regulation, the tremendous growth of credit in recent years has the potential to result in large-scale financial distress.