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Fears of a Chinese ‘hard landing’ have resurfaced in 2014 on the back of concerns over the increase in local government debt levels, a possible property price bubble and the rise of the shadow banking sector. The ‘hard landing’ scenario modelled in this note (using the IMF’s Global Projection Model) assumes a severe tightening of credit conditions following the crash of the housing market and default by major real estate developers, and also assumes a drop in confidence by domestic and international investors. The Chinese ‘hard landing’ results in a substantial reduction in both global and domestic GDP growth in 2014/15.
