Overseas Borrowing Exposes China to U.S. Interest Rate Rises

China’s overseas borrowings are leaving the country increasingly vulnerable to a rise in U.S. interest rates, potentially creating funding problems for some companies and tighter conditions for the financial system overall.

The world’s second-largest economy largely rode out the 2008 global financial crisis, shielded in part by a surge in domestic bank lending and capital controls that protected it from a sharp reversal in global money flows.

China still tightly controls capital flows, but authorities have allowed more foreign capital into the country to drive growth. As China’s links with the global economy have increased, moreover, so have the leaks in its once watertight controls on capital.

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