Are systemic risks building in China? The stress events in one of the country’s biggest growth engines—its property sector—has sparked concerns about a cascading debt crisis that could pull in its financial system and broader economy, with attendant implications for the rest of the ASEAN+3 economies. This note analyzes the extent of China’s property sector risks and the possible macro-financial impact on the rest of the region from any deepening and protracted stress in the sector. It suggests that markets currently perceive China’s current overall financial stress to be at “mid-risk” levels, and that regional spillovers from any large shock to China’s property sector are likely to be via the real rather than financial channel.

The note also introduces AMRO’s Risk Identification and Signalling Kickoff (RISK) exercise, aimed at assessing systemic risks to the ASEAN+3 region. Still in the early stages of development, RISK is envisaged to be AMRO’s ASEAN+3 counterpart to the IMF’s and FSB’s Early Warning Exercise (EWE), which assesses the potential consequences associated with economic and financial tail risks to the global economy.