So, how is China achieving 7.5% growth if it is powering down steel plants and letting copper stockpiles build up? With debt.
Despite official instructions to banks to curtail lending to overstretched developers and municipalities, loans are still increasing at rates twice as fast as the economy—and those numbers exclude a so-called shadow-banking lending system estimated at more than $5 trillion, or 80% of gross domestic product.
“That doesn’t make sense,” says PNC Financial economist Bill Adams. “Eventually, sustainability concerns will either cause Chinese policy makers to slow credit growth or investor risk aversion will cause less credit to flow through the trust companies” that manage the shadow lending programs.