Ask most watchers how they rate China's reaction to the 2008 financial crisis and the chances are that they will give Beijing 10 out of 10 for its policy response. While policymakers in other large economies bickered about moral hazard, the Chinese authorities showed no hesitation. As soon as the depth of the global slowdown became clear, Beijing ordered a massive programme of infrastructure investment to support domestic employment and to prepare the ground for future growth, especially in the country's poor western regions. At the same time, the authorities increased minimum wages and stepped up efforts to build a social safety net in the hope of promoting domestic consumer demand as the nation's main engine of economic growth in place of an ailing export sector. To most observers, the policy combination has been a resounding success, with economic growth expected to come in somewhere close to 10 per cent this year, following the country's 9.1 per cent expansion last year. But there is a minority that takes an altogether dimmer view of China's economic policy management. The doubters note China's rapid growth over the past couple of years was achieved only because of a massive expansion in bank lending. Last year, mainland banks extended 9.6 trillion yuan in new loans. That was equal to almost 30 per cent of gross domestic product for the year, and was a 150 per cent increase on 2008. This year, new loans are likely to approach 8 trillion yuan. As a result of all this lending, mainland money supply has rocketed by more than 50 per cent since the start of Beijing's stimulus efforts. That's ominous. Whenever China's money supply has expanded at anything approaching such a fast rate in the past, a painful burst of inflation has followed closely behind. Now it is true that the official rate of consumer price inflation has remained modest this year. But the sceptically inclined argue that you don't have to look far to see signs of dangerous inflationary pressure popping up all over the mainland economy. Most obviously there is the property market. Government-compiled data show relatively restrained price increases. But property agencies report much greater rises, with the price of luxury apartments in some cities more than doubling in a speculative frenzy since the beginning of the government's stimulus efforts two years ago. Official efforts to rein in prices introduced back in April have taken some of the steam out of the market, but doubters argue that the government's cooling measures have tackled only the symptoms of asset price inflation in the property market, and not the underlying monetary causes. Indeed, nervous analysts point to troubling pockets of inflation in other markets, from fine wine, through period and contemporary artworks to the stock market. In the past four months, the Shanghai composite index of mainland-listed shares has surged by 32 per cent. This last development is especially worrying, as recent research indicates that buoyant mainland stock prices tend to boost confidence and encourage more bank lending, which then adds to inflationary pressure in a runaway positive feedback loop. As a result, analysts are getting increasingly worried that the monetary growth of the past two years is threatening to spill over into higher consumer prices. Consumer price inflation edged up to 3.6 per cent in September, well above the government's 3 per cent target, while food price inflation hit a painful 8 per cent. That rise prompted the People's Bank of China to increase interest rates by one quarter of a percentage point last month. But with the benchmark one-year deposit rate still below the rate of inflation, the impact of the tightening is likely to be limited. With consumer inflation likely to have hit 4.1 per cent in October and expected to remain elevated into next year thanks to pay rises and utility price reforms, Jun Ma, China economist at Deutsche Bank, warns that the mainland authorities will be forced to make another four rate rises over the next two years, raising interest rates by a full percentage point and shifting their policy stance to 'prudent' from 'relaxed'. That is more tightening than most observers currently expect. But if interest rate increases totalling 1.25 percentage points prove sufficient to rein in the monetary forces unleashed by the massive expansion of bank lending over the past two years, then it would be hard to dispute that China's policymakers fully deserve their reputation for deft economic management.