Don’t mistake China’s scrapping of loan quotas as a market-oriented reform. On the contrary, Beijing seems set to replace a blunt macro tool with an array of sharper, micro ones. Rather than operating within the constraints of an annual, industry-wide quota, each bank will have its lending limits prescribed by regular reviews of its individual reserve requirement ratio.

The system was due an overhaul. As there were no clear rules on quota allocation, banks had an incentive to lend as much as possible in the first few months to expand their market share. In 2010 they splurged almost a third of the year’s Rmb7,500bn quota in January and February; the year before they did more than half. In that context, a more tailored, dynamic system is an improvement. But it will not necessarily lead to a more efficient allocation of capital. State-owned banks will continue to favour state-owned companies with which they have existing relationships, and which can provide collateral. Interest rates will still largely be administered by the central bank, rather than being set through the interplay of demand and supply of money.

Media reports on China’s forthcoming 12th five-year plan often use the phrase xiaocaoxin – literally, “to worry less about something” – in relation to government policy. But rather than implying a more hands-off approach, it signals that planners take demand as a given, and are confident that their chosen cadre of producers will rise to meet it. As Carl Walter and Fraser Howie argue in their new book, Red Capitalism, the country’s financial system is arranged mainly for the purpose of cheaply financing the party-state and its various corporate interests. The hot money continuing to pour into China should not forget that.