FORTUNE — China began 2013 with the same old economic model. Growth for the first two months of the year was driven mainly by exports and real estate. The increase in construction appears to have been fueled by credit. The current trajectory can continue only by pumping ever more leverage, and risk, into the system.
Investment in cities was up 21% compared to the previous year in January and February — faster than the whole of 2012. Some of the infrastructure that is being built will become necessary as China’s urban population swells. But the worrying bit is property investment. Even as the government tries to rein in real estate speculation, investment in residences increased by 23%, compared with 11% for the whole of 2012.
That growth is being driven by credit. Property development tends to fluctuate with the growth of “total social financing”: a measure that includes not only bank credit and bonds but also inter-company loans and funding from trust companies. During January and February, it grew 79% year on year.
All that lending, though, isn’t trickling down to the man on the street. Consumption looks relatively weak, based on the admittedly flawed metric of retail sales. These grew at around half the rate of property investment. Sales of clothes and cars slowed from last year; growth in everyday items, food, tobacco, and furniture were the worst in two years.
Arithmetic suggests this can’t last. If the past two months’ lending run rate continues, China will pump almost 22 trillion yuan of new financing into the economy in 2013 — a 37% increase over the previous year. While this may allow the country to once again meet its official growth target of 7.5%, it will have been achieved at the expense of an ever greater build-up of financial risk.
Last year, many bearish investors bet on a Chinese property market crash that didn’t materialize. The startling rise in social financing was the main reason why. The latest data suggests that while the timing may be hard to predict, an eventual reckoning still looks inevitable.
Read more at Reuters Breakingviews.