So there haven't been any big reforms. There's been a big credit bubble instead. Local governments and developers have gone on a borrowing binge the past five years to build new infrastructure and new cities, including ghost ones. In other words, China is getting rich now by building the things it needs to be rich, and putting it all on the credit card. The result, as the ratings agency Fitch points out, has been a bigger credit increase relative to GDP than just about anywhere else in history. As you can see in the chart below from Credit Suisse, total credit shot up from around 120 percent of GDP in 2008 to 190 percent today—most of it from so-called "shadow banks" that aren't regulated. In comparison, U.S. credit "only" went up 40 percentage points of GDP in the five years before the housing bubble popped.



Nobody knows how much we should worry about China's shadow banks, because nobody knows much about them. Not even the people buying their bonds. Reuters, for example, looked into one shadow bank product called "Golden Elephant No. 38" that promises a 7.2 percent return, but doesn't say what's backing the security. After some digging, Reuters found out it was an almost-abandoned housing project in a rural province. This might sound like a scare story, but it's actually a fairly typical one. They looked at 50 other products, and didn't find much better—or any—disclosure.

A rumpled, 50-something man from Hangzhou named Wang Zhigang pulled me aside afterward and asked for my advice about investing. Until then, he had made his money through curbside lending, not stocks. But, he lamented, his returns had dropped from more than 30 percent a year to a mere 23 percent. He worried about his personal fortune, which he had built up from nothing to almost 3 billion yuan (about $445 million back then).