하나은행 하나금융연구소

Five risk factors to the future path of the Chinese economy in 2012
① Investment bubble: the government-led investment boom since the financial crisis resulted
in liquidity contraction, sluggish exports and adjustment in the real estate market, subjecting
the economy to buble risk. 
② Real estate bubble: with housing bubble concentrated in large cities, there remains a possibility
that the housing market can be cooled down suddenly during debubbling. 
③ Default of local government debts: with many of the debts approaching maturity, local governments
may declare default, faced with fiscal deficit owing to low sales of land, which can spread risks to
the banking sector.
④ Ineffective shadow financial system: although the shadow financial system has been expanding
driven by continued fiscal tightening by the government, it is threatening the stability of banking system
with concerns over its ineffectiveness amid economic slowdown.
⑤ Leadership change: with leadership change scheduled in 2012, the country may face greater political
uncertainty and lose political and social stability if the new leadership seeks whole new policy directions.

Caution needs to be taken against potential global shock from China, rather than expecting
the country to serve as a buffer in the global economy.
-In several crisis conditions including the Asian financial crisis in 1997 to 1998, China contributed to
preventing them from spreading further with stable policy management and timely responses, playing
a buffer role.
-This time, however, although uncertainty in external conditions are getting even worse, internal risk
factors have come to the front, leaving little leeway for the government to take active policy measures.
-Rather, with its importance in the global supply chain highlighted recently, there are heightened
concerns over global contagion of "China shock" while the global economy should contract inevitably
owing to slowdown of the Chinese economy.
-In addition, changes in external investment strategy of China, a country with huge foreign currency
reserve, are likely to have significant impacts on reorganization of the international monetary system
and the eurozone crisis, as well as the US treasury bond market and emerging markets.
-Moreover, if China makes another attempt to boost exports with devaluation of the yuan as a way to
manage the risk of hard landing, it may result in another round of foreign currency war and protectionism.

(This report is the 1st one of 3 Global Risk Series reports.)