China on a risky path to recovery (Jul 09)

Continued rapid loan growth in China makes the emergence of asset bubbles increasingly likely. Around a fifth of loans extended so far this year have been invested in the stock markets, according to one government researcher, and loans may also have supported a wave of speculative commodity buying and a surge in property transactions. Nonetheless, the government seems in no hurry to rein in the growth of credit, which is also driving a rebound in investment. For now, with the economy on the mend and confidence returning to property and equity markets, the consequences are benign. But the decision to rely on the banks to stimulate the economy, rather than on, say, government spending, stores up risks for the future.