Is China the next big bubble economy?

China's rapid pick-up in growth is entirely down to a huge rise in bank lending - up five times on the same period last year. And with runaway lending come asset bubbles. Cris Sholto Heaton examines whether China is heading for a credit bubble, and whether investors should be getting worried.

The world's central bankers must be a little envious of Zhou Xiaochuan. While they struggle to pump enough money into the financial system to stave off deflation and deleveraging, the People's Bank of China governor faces the opposite problem.

China's rapid pick-up in growth the second quarter GDP number was a solid 7.9% year-on-year, and probably an even better 12% or so using the quarter-on-quarter annualised method that most big economies use is entirely down to a huge rise in bank lending. In June, banks made RMB1.53trn (US$224bn) in new loans five times more than the same time last year.

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China (CSI 300)3,520+3.6%
Hong Kong (Hang Seng)18,806+6.2%
India (Sensex)14,745+9.2%
Indonesia (JCI)2,118+2.7%
Japan (Topix)872-0.1%
Malaysia (KLCI)1,121-0.5%
Philippines (PSEi)2,554+5.0%
Singapore (Straits Times)2,431+5.3%
South Korea (KOSPI)1,440+0.8%
Taiwan (Taiex)6,851+1.2%
Thailand (SET)596+5.3%
Vietnam (VN Index)429-2.4%
MSCI Asia93+1.6%
MSCI Asia ex-Japan401+5.0%
Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.