Capital Inflows, Credit Booms and Their Risks

This paper highlights the findings of some of the recent research on capital flows, credit booms, and their attendant consequences for asset prices, business cycles, financial crises and the interaction among these. The aim is to condense key results from the relevant literature and promote discussion on how financial and economic developments in China in recent years fit within established patterns detected in the broader cross-country and historical experience encompassing advanced and emerging market economies across most regions. The big question posed is whether taken together these developments describe the antecedents of a banking crisis with its potential severe consequences for economic activity or a milder soft landing scenario.