By Daily Crux Editor Justin Brill:

New Chinese regulations will ban local governments from guaranteeing loans, a practice that has become widespread during China's credit boom. The practice allowed local governments and legislatures to "insure" loans for risky real estate and infrastructure projects that the banks otherwise would not lend.

Thanks to these guarantees, an estimated $1.7 trillion dollars worth of risky loans were passed off as low-risk.

China is looking to shut down this source of easy credit, but it could be too late already. There are untold numbers of projects in process, and this ban could leave many without funding for completion, and could inadvertantly set off a "gigantic wave" of bad debts, according to Northwester University professor Victor Shih.

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