Chinese Lending Out of Control

Great summary from Market Skeptics. Bloomberg is reporting that China's central bankers are starting to worry that lending is out of control.

The evidence leaves no doubt. Through June, Chinese banks have increased credit by an amount equal to 1/4 of last year's GDP.

Now this is what already happened. There is no doubt in my mind that this extraorinary expansion of credit is partially responsible for the run-up in the prices of oil, copper, and global equities.

It could also explain the strength in bonds recently if the smart money in China was cashing out in anticipation of Chinese credit tightening.

Now, the question I have is, "how much gold did the Chinese buy in the last six months?" I don't know the answer, but the question makes me nervous. If tightening prompts a real estate and stock bubble collapse in China, gold may do very well. Hard, to tell, but gold's been weak lately, so maybe I should sell GLD just to be safe.

Theory

After the US economy collapsed, China needed a way to keep their economy growing. They could no longer print yuan to buy dollar reserves, because exports dropped so much (they're still buying Treasuries, but it isn't enough to maintain growth). So, they decided to relax lending standards and told banks to lend more money. This has caused one of the great credit expansions in history. However, this money is not causing growth. Instead, it is causing asset bubbles to get out of control. Central banks fight this.

The question for me is what happens next? What are the ramifications and likely consequences?