"We doubt that the financial system in China will experience a liquidity crunch immediately because of this default but we think the chain reaction will probably start.”
The reason I think they are right is that China has had a very long run of economic expansion and, as such, problems have been hidden by growth. As growth slows then the problems that have been buildling up will start to come to the fore. The massive credit explosion of the banking system from 2008 to 2013 with bank credit rising from $10 trillion to $24 trillion kept the Chinese economy going and booming so to speak. However, much of that credit went into poor projects with poor returns and also led to an explosion of property prices and the property sector. Many that borrowed will struggle to repay and that means serious problems for economic growth and the banking sector in both China and Hong Kong. Sure there will be a policy response but prepare for a hard landing in both China and Hong Kong !