As If you didn’t know this already, the wall of money being funnelled through Chinese banks is creating a massive speculative bubble in shares. The Telegraph reports:
Under orders from the government, China’s banks have flooded the economy with new credit this year, advancing more money in the first six months than the total for 2008.
It is the biggest wave of money since the People’s Republic of China was founded in 1949. The loans are part of a stimulus package to spur domestic investment and consumption and help the economy through the financial crisis.
However, a significant proportion has been diverted into shares and property, with the Shanghai Stock Exchange rising 60pc since January.
Several economists believe a large part of the government’s 4 trillion yuan state aid package has also failed to reach the "real" economy.
Wei Jianing, an economist at the Development Research Center of the State Council, said 20pc of the new bank loans had reached the stock market, and 30pc had been invested in property.
According to the Chinese state media, Wei said the huge flow of money could fuel further asset bubbles. However, he was careful to note that this was not yet the view of the State Council, China’s ministerial cabinet.
“When funds are circulating and swelling inside the financial system, instead of servicing the real economy, we see this as a sign of bubble formation,” said Wei. “Now the rapidly circulating funds can easily boost the stock market and produce new financial bubbles, and lift real estate prices as well.”