The past week has demonstrated (and not for the first time) one of the perils of a globalised financial system: the potential for problems to metastasise quickly, upending the outlook across major economies.

The connection between the collapse of Silicon Valley Bank (SVB), a regional lender that wasn’t even designated as a global systemically important bank (GSIB), and Credit Suisse Group, very much a GSIB, are far from obvious. Yet the plunge in confidence in smaller US banks made the leap over to Zurich nevertheless.

For China, it’s another reminder of the value of capital controls that wall off its financial sector. These latest developments reduce Beijing’s incentive to promote integration and argue in favour of maintaining restrictions—all while making use of Hong Kong as a controllable connection to the global system.

Nomura Holdings economists led by Rob Subbaraman wrote in a note to clients this week that “financial instability is fanning credit risk aversion globally and raising the likelihood of recessions in many economies, with one notable exception: China.”

With its status as a reliable and “exemplary” superpower growing, “it is highly likely that China will be an important growth pole for emerging markets this year,” and particularly those in Asia, Nomura’s economists concluded. 

For years, reform-minded technocrats at China’s regulators—including its central bank—backed the idea that an increased presence by US and European financial players in its capital markets would help modernise them.

In the past, Chinese credit-rating agencies would rate almost all domestic companies as investment grade. Just a few years ago, more than 40% of domestic corporate bonds had a top AAA rating. Reformers wanted to let foreign agencies in to help overhaul such practices.

The Chinese corporate-bond market also had some highly unorthodox practices—including companies secretly putting in orders for their own bonds for sale in an effort to drum up broader investor enthusiasm about the securities. Overseas investment banks were also invited into to assist with changing this as well. In the asset-management field, foreign mutual fund managers like BlackRock Inc were granted licenses.

Institutional investors have a small footprint in China, with much of the stock market driven by individual, retail traders. Households pour their savings into property (rather than mutual funds or insurance products) when they aren’t keeping them as cash.

Beijing’s broader hope was that reducing barriers and ushering in foreign firms would help make its financial system more efficient, and encourage the allocation of credit on the basis of risk-reward calculations. That would improve productivity across the economy, bolstering incomes and development, reformers thought.

But the past week’s events from California to Zurich have shown there’s no guarantee of better outcomes with Western firms.

KPMG LLP, the global auditing giant, gave clean audit opinions on Silicon Valley Bank and Signature Bank, which have both now collapsed, along with California’s First Republic Bank, which has come under severe scrutiny in the wake of SVB’s collapse. (Even after a $30 billion cash injection was revealed Thursday, First Republic is still in big trouble.)

Back in China, regulators this week punished Deloitte Touche Tohmatsu over lapses in its auditing work of bad-debt manager China Huarong Asset Management Co. Meanwhile, the financial turmoil gripping developed nations is coming just as Chinese President Xi Jinping touts a new model for economic modernisation, conceived by the Communist Party of China.

As Xi said this week, “The Chinese path to modernisation is a sure path to build a stronger nation.”

It also unfolds amid a massive shift of control in Chinese financial regulation. The Communist Party announced this week it’s setting up two new financial bodies that take precedence over the state—part of a broader strengthening of the party’s role.

What this means for financial regulation and the technocrats’ push to bring China closer to Western markets is unclear. What is more certain is that, if banking strains now tip most of the developed world into recession—with continued high inflation, to boot—China will have less incentive to promote financial integration. And China’s appeal to emerging markets from Indonesia to Brazil as a partner and something of a model will only grow. 

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.