China's recent move to increase the reserve requirement and its intent to bail-out the nation's four biggest banks shows that its economy is in trouble but these moves can hurt more.

china's economy is dynamic and rising very fast. Its potential is unquestionable. Every nation is wondering how it is able to attract the huge foreign inflows. But in between all these, less number of economists, investment banks and analysts have paid much-needed attention to the risks. One of the biggest among them is the brittle financial system, especially banking system of China.

Huge bad loans problem of China can make it a risky market for investments that also dwarfs Japan. Two most important developments in the recent past can put its economy in trouble. First, in a move to control the money supply in the economy, its Central Bank, People Bank of China, has increased the reserve requirement on commercial banks. It can increase the corporate debt defaults in spite of robust economic growth of around eight percent.

Second is China's intention to spend around $121 bn (yuan 1 tn) (according to the South China Morning Post) for the bail-out of four biggest state owned banks namely Agricultural Bank of China, Bank of China, China Construction Bank and, Industrial & Commercial Bank of China. This measure would help to boost their capital adequacy ratio and reduce the bad loans ratio, but at what cost to the economy?

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