Severe distortions in China’s financial system are seen by many analysts as the biggest single factor behind the country’s runaway investment boom.
Large corporations and state-backed entities are able to borrow money from banks at artificially cheap levels, fuelling reckless spending decisions. Meanwhile smaller businesses – the lifeblood of the economy, generating about 80 per cent of jobs – are seen as risky borrowers since they lack government backing and so have little access to the state-run financial system.
“Money flows to the state-owned enterprises in the end and they can use this to get into real estate or to provide financing for others, so asset bubbles get more and more serious,” says Zhang Jun of Shanghai’s Fudan University.
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