Banks in China are both the villains and heroes of the country’s economic success. They fuel the extraordinary economic expansion that is the envy of the world. However, they are also one major cause of the overheated growth, inflation and other excesses that have accompanied each of the booms of the past two decades.
The story seems to be repeating itself in the current cycle. In the past two years, banks have been making a record volume of loans, leading to 100%-300% growth in investment in some industries. As inflation has slowly risen, the government has shelved numerous industrial projects, the central bank has tightened money supply and the banks have been ordered to reduce lending.
