Yi Gang, director of the Monetary Policy Department of the People’s Bank of China, admitted that the quick growth in credit was despite the central bank’s precautionary measures. He cautioned that excess lending, if not effectively checked, may lead to serious problems to undermine the entire Chinese economy development:
- A fast rise in money supply may push up the consumer price index, triggering runaway inflation.
- Excessive loans may result in investment duplication and aggravate oversupply in some red-hot industries, which in turn will fuel price wars, causing deflation.
- Capital bubbles may emerge in the property and stock market to breed the so-called bubble economy, the bursting of which may drag the Chinese economy into a long-term recession
