The Threat of Non-Performing Loans in China in Lights of the Recent Crisis

In the lights of the recent crisis, the monetary policy became the most important weapon that an economy must rely upon, considering that the banking system was the first one to be affected by the crisis and then the effects had spread upon the entire economy. In order to avoid lack of liquidity and therefore a major crisis of the banking system, China adopted a stimulus package through which inserted large amounts of money into the economy in order to stimulate loans. As previous crisis proved, a “credit boom” is dangerous because it eventually leads to a high number of nonperforming loans. Although is effects are visible after a period of time, precautionary measures have to be taken by the monetary authorities to avoid spreading an unhealthy financial system.