In a few Chinese industries, heavy investments have continued even as signs of excess capacity have begun to appear - another possible indication of capital misallocation. An example is the steel industry, in which excess 11 capacity appears to have tripled between 2002 and 2005 to reach more than 115 million metric tons.
Allowing competitive financial markets to play a larger role in the allocation of capital would likely increase the returns to investment and reduce the risk that uneconomic investments could exacerbate the problem of nonperforming loans and contribute to future financial instability.