They include excessive maturity mismatches, where long-term loans are funded essentially by short-term borrowings; less-than-ideal transparency about asset quality; distorted incentives for provincial government entities; assumptions on the part of investors in wealth management products about major bank or government support – and so on. Recent credit events in China have increased focus on the possibility of failure of entities with non-viable business models.
There has been a widening of risk spreads for lower quality credits. To some extent this could be seen as a positive development, as a clear-eyed assessment and pricing of underlying economic risks is critical for sound longer-run development in China no less than in any other nation.