Where the Next Crisis Will Come From

China may be the scariest source of risk on the horizon. Its growth rate has been driven by unsustainably rapid expansion of lending to businesses and households, says Bloomberg Intelligence Chief Asia Economist Tom Orlik. The government has signaled, through an editorial in the state-run press, that it wants the country to start deleveraging. “So far it is not clear if words will be matched with deeds,” Orlik wrote on Oct. 11.

Chinese banks are “the major risk, a potential detonator,” says Samuel Malone, director of specialized modeling at Moody’s Analytics. He looked at the size, fragility, and interconnectedness of the world’s biggest banks and concluded that China’s Southeast Asian neighbors, particularly Singapore, are most directly exposed. China’s shadow banking system is huge and poorly understood, and the losses that it suffers could quickly be transmitted to conventional banks.

http://www.bloomberg.com/news/articles/2016-10-20/where-the-next-crisis-will-come-from