China has lambasted the US for its decision to launch another $600bn in monetary easing, fearing that this round of “quantitative easing” may feed the flood of money rushing into mainland China from overseas. But while capital inflows are a problem for Beijing, there should be no doubt that China’s swelling money supply and resurgent inflation are primarily “Made in China”.

Bank lending – which ballooned to a record Rmb9,600bn in 2009 as China rushed to reflate its economy after the global financial crisis – is looking increasingly likely to bust through the government’s solemnly decreed 2010 target of Rmb7,500bn ($1,130bn), after banks lent an official Rmb6,900bn in the first 10 months of 2010.

But more worrying than these official numbers are the inflationary pressures springing from a subterranean world of informal finance. Although the size of China’s underground financial system is uncertain, it is unlikely to be modest. The system includes off-balance-sheet lending by state banks, the funds under management by “private” funds and the assets of a booming multitude of unregistered banks and loan sharks.