A front-page article in the People’s Daily in May sent shockwaves through the Chinese bureaucracy. It quoted an unidentified “authoritative figure” warning readers of the ruling Communist party’s flagship newspaper about the country’s dangerous addiction to debt.
After a tumultuous start to the year, which began with a stock market and currency crisis, the government had needed strong first-quarter growth to restore confidence in its ability to manage the world’s second-largest economy. So there was relief when it was announced, on April 15, that the economy had grown 6.7 per cent in that period. The feeling soon evaporated, however, over concerns that the growth had been “bought” at the expense of financial discipline. In January alone, banks had issued Rmb2.54tn ($380bn) in new loans, expanding China’s property bubble and giving rise to a new one on its commodity exchanges.
According to party and government insiders, the article — a blunt warning that things had to change — was written by one of President Xi Jinping’s key economic advisers, Liu He, who runs a Communist party “leading group” on financial and economic affairs. Such groups have existed for decades but since Mr Xi took office in March 2013