...ask ourselves, what could go wrong in China that would end the bull run in the Chinese asset prices and wreak havoc the economy? When might these potential risks unfold and what are signs to watch out for?

External risk. The external risk to China is a sharp slowdown in external demand stemming from the U.S. subprime woes. China's exports are already vulnerable to slowing world demand growth even without the subprime crisis. The impact of China's self-imposed export restraint measures, like the cut in export tax rebates and the introduction of export tariffs and quotas for some products, will aggravate that vulnerability.

Since net export has been a major contributor to China's GDP growth in recent years, an export slowdown will hurt economic growth. However, there are offsetting forces from the domestic front limiting the negative...

NOTE: All illustrations and photos have been removed from this article.




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