Of course, credit expansion for reasons beyond economic merit might for a while help increasing economic growth. If credit expansion works toward the extension of productive capacity, this process might go on for an extended period of time, even if borrowers in the long run will not be able to pay back their loan. The downside in this case is the accumulation of non-performing loans in the banking sector which in the end might lead to high fiscal cost. This might actually be what has been observed in China: One could argue that a non-trivial part of the loans by.
