China, Japan More Vulnerable to Financial Shocks, BOE Study Says

  • Emerging markets, Asia most at risk of crises, research finds
  • Risk gauges for China, Hong Kong, Japan up strongly since 2008

Asian economies including China, Hong Kong and Japan have become more vulnerable to financial shocks since the 2008 global crisis and are now among the most at risk, according to a Bank of England research paper.

“The sluggish global recovery took its toll particularly on the Asian economies, with vulnerabilities rising to elevated levels over the past few years," Jack Fisher and Lukasz Rachel wrote in the paper, published on Friday. While vulnerabilities were high in the U.S. in the run-up to the financial crisis and relatively low for some large Asian economies, “it is now emerging markets and Asia in particular that appear to be the most vulnerable,” they said.

BOE Governor Mark Carney last month highlighted the increasing risks from China, the world’s second-largest economy, and the central bank’s annual stress tests this year featured a sharp economic slide in the nation. At the end of 2015, vulnerabilities for some countries were “close to record-highs,” with measures for China, Hong Kong and Japan up “strongly” since the financial crisis, Fisher and Rachel wrote.

“The external vulnerability -- reflecting the level of foreign-exchange reserves, current account and external debt, appears to be very elevated across all of the Asian economies at the moment,” they said. That is “perhaps in line with some concerns about global financial imbalances in that part of the world.”

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