But following the financial crisis, we now know that ignoring the financial risks can create a huge mess. And for China, the financial risks seem to be accelerating much faster than any particular problems with growth or inflation.
For example CPI was up 2.4%YoY in April, a little higher than in March. This if anything is on the low side, but is fairly benign. Growth as well has been a little weaker than expected, but at 7.7%YoY in Q1, its not disastrous.
Perhaps such an inflation and growth profile would give policy makers some range for somewhat easier policy. But what is much more concerning the moment is the explosion in the rate of financing and the sectors of the economy this seems to be propelling.
Social finance, which is a broad measure of credit used by the People's Bank of China (PBC) has risen 58%YoY in Q1, which is much stronger than anyone would be comfortable with.
The difficulty for policy makers is that the strong growth is not coming from bank loans (up 11%YoY), which the government has a tight leash on. Rather financing from trust loans or corporate debt issuance has also been incredibly strong.
Alternative avenues of financing is not a bad thing and is probably inevitable as the economy expands and financial markets get more sophisticated. But where this money seems to be going would be concerning, particular given the massive increase in housing market activity.
Housing sales are likely to remain up ~30%YoY in April while housing construction indicators continue to climb. Growth elsewhere, however, is more lack lustre. Retail sales, for example, are weaker than any point in 2012.
This isn't a story that must end in disaster. But at some point soon, is going to be a negative for activity as policymakers either try to contain things, or it busts on its own.
And while the mix of growth in China has always bothered many, its the speed at which the quality of growth in Q1 appears to have deteriorated which makes this issue more urgent than it has been in the past.
