Just a follow up to our last post. This chart from the IMF illustrates how China was able to skirt — in relative terms — the deep economic contraction by generating a huge expansion in domestic credit and increase in its money supple. This, while credit was contracting in the rest of the developed world.
Imagine the politics of, say, the U.S. administration or state and local governments ringing up Citibank and Bank of America and telling ordering them to extend credit to a construction company to build the country’s largest shopping mall? Great policy until the mortgage has to be paid. The tremors, of which, are now being felt in China’s financial sector.
(click here if chart is not observable)
Global Macro Monitor 
Beijing has pushed through waves of dubious loans in the past, with lots of losses afterward that forced the Beijing to recap the banks. Why doubt they can do it again? Beijing still has guns and prisons.
And why is this worse than US politicians passing rules to press banks to make dubious home loans, or European politicians pressing banks to make purchases of dubious sovereign debt?
Excellent points, V.. And we knew they were coming when we wrote this piece…. Nevertheless, it rips open the curtain on China’s miracle economy..