The Chinese financial crisis of 2014?

Chinese gauges of financial stress — including the TED spread, which is the difference between interest rates on interbank lending and interest rates on government bonds — have widened sharply in recent days, suggesting that the Chinese financial system is under severe stress. The New York Times' Paul Krugman is worried:

Other economic commentators, including Michael Pettis, George Soros, and myself, have warned that China's fast-growing economy is heading toward turbulence due to the difficulty of making a transition from export-driven industrial growth to consumer-driven domestic growth. China's rapid economic growth has become increasingly and unsustainably debt-financed. Local government debt has soared over 20 percent in each of the last three years, far outpacing growth, and nobody actually knows quite how much debt China's notoriously opaque financial system is sitting on.

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