China must turn off the taps of credit-driven growth to avoid a financial system

crisis in the face of rising bad loans and other risks, the Communist Party's official

mouthpiece newspaper said on Monday, citing an unnamed "authoritative" source.

The prominent article, in question-and-answer format, started on the front of the

broadsheet paper and took up the entirety of page two.

China's Communist authorities are trying to retool the economy away from the

investment- and export-led growth of the past to one more led by consumer demand,

and reform lumbering, loss-making state-owned enterprises to make the sector more

efficient.

But the transition is proving bumpy, raising fears of a hard landing, and global markets

have been alarmed by slowing expansion in the world's second-largest economy.

Attempts to address the slowdown in the first quarter of this year -- when growth slid

to 6.7 percent -- were largely driven by investment, the People's Daily quoted the

source as saying, putting more financial pressure on some local governments.

Analysts said the comments could be a signal that Beijing is to rein in monetary

stimulus efforts.

"A tree cannot grow in the air," said the source, arguing against raising debt further.

"Further leverage must not be added to push up growth, nor does it need to be," the

interviewee added, warning of a possible crisis as high debts "will definitely bring

about high risks".

"A system financial crisis could be triggered if no good controls are implemented,

leading the economy to contract and even household savings to evaporate."

It is the third time in less than a year that the People's Daily has cited "an

authoritative person" to discuss top-level economic policies.

Chinese news portal Sina has previously said that such an "authoritative source"

in similar People's Daily articles could be a high-ranking government official, such

as the head of the top economic planning agency the National Development and

Reform Commission, or a respected scholar who participated in major economic

policymaking.

"While the anonymity has been protected, the views expressed in these articles did

have a large impact in China," Nomura economists said in a note.

The report implied that future monetary easing "may be more cautious and that

the government may try to hasten the pace of reforms", they said, evidence that

China's "debt-fuelled rebound in investment growth will be short-lived".

China's growth will continue to slow, the source said, as sluggish demand and

overcapacity are "unlikely to turn around fundamentally in several years".

Boosts from credit expansions have declined and the government must "completely

abandon the delusion" of trying to stimulate growth by loosening money supply,

added the source.

Instead authorities should accelerate reforms, stop lending to "zombie companies"

to reduce overcapacity, allow migrant workers to settle in cities to expand demand,

and further cut taxes.

See more at:

https://www.yahoo.com/news/top-china-paper-warns-crisis-risk-over-debt-

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