21

Since 2008, China has experienced an unprecedented phase of private debt expansion. Faced with incurring risks, the authorities have implemented reforms aimed at raising the financial sector’s soundness. They maintained this strategy despite the economic slowdown. It began to bear fruit, with stabilization of debt levels since 2017. However, the Covid-19 crisis brings unprecedented challenges. The Chinese authorities deployed support measures that were limited in scope, to avoid falling back into a debt spiral. However, the increase in debt levels and the shock to economic growth poses new risks to the financial sector, in particular to banks. Authorities should remain present to avoid a banking crisis in the medium term, but the issue of managing non-performing loans will remain crucial. The resilience of the Chinese economy and the growth rebound alleviate risks. Yet, the structural weaknesses of the financial system will remain a crucial issue for China. JEL Codes: E44, E52, G21, G51.