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China's 'Authoritative' Warning on Debt: People's Daily Excerpts

  • Front-page interview published Monday didn't identify speaker
  • High leverage 'can trigger systemic financial crisis'

The main publication of China’s Communist Party published comments Monday from an unnamed “authoritative person,” who said the world’s second-largest economy must face up to its nonperforming loans and other risks associated with soaring debt levels. 

The interview in the People’s Daily started on page one and completely filled the second page of the broadsheet newspaper. The following are excerpts that were translated from Chinese by Bloomberg News:

Economic Growth:

"Economic performance is basically in line with expectations and some highlights were better than expected. However, existing contradictions in the economy have not moderated, and new problems have emerged."

"It is undeniable that existing problems are not thoroughly solved and new problems are revealed. Economic stabilization relies on the old method, which is investment-driven, and fiscal pressure in some areas has added up to possibilities of economic risks."

Economic Outlook:

"China’s economic performance will not be U-shaped and definitely not V-shaped. It will be L-shaped" for more than one or two years.

"The Chinese economy has great potential, resilience and room to maneuver. The speed won’t drop drastically, even without stimulus."

"Some regions, sectors or enterprises will always benefit from differentiation while some others will taste bitterness. But still they’ll learn a lesson and know what the next step is. In that sense, I don’t see it as a bad thing."

Macroeconomic Control:

"Both supply-side and demand-side measures are needed for a healthy macroeconomic development, but the emphasis will be different during different time periods."

"Supply-side structural reform must be strengthened and on target, while demand-side reform would aim to create favorable conditions to solve the principal contradiction."

"Prudent monetary policy and proactive fiscal policy should be truly prudent and truly proactive."

There are dilemmas: "The most outstanding one is that, on one hand, the economy is under downward pressure and on the other, there is high leverage in the real economy."

"China’s labor force is shrinking and the industrial structure is improving, so even though there will be a big economic slide, employment will remain stable."

"High leverage inevitably leads to high risks, which, without proper management, can trigger a systemic financial crisis, cause negative economic growth and even eat up people’s savings, and that’s fatal. Such a comparison shows it is neither possible nor necessary to force economic growing by levering up."

"It is necessary to scrap outdated administrative measures to restore the functioning of the property market. Big stimulus will only result in bubbles, which is a must-learn lesson."

Supply-Side Reform:

"The reduction of overcapacity and closing of ’zombie’ enterprises will continue. That is a difficult issue involving people and money, which means employment and debt."

Managing Expectations:

"If we go back to the stimulus-driven path, concerns will rise and the market will hesitate and will not know what to do. Policy communication is needed to improve our guidance and transparency. The intention and definition of policies should be stated clearly to reduce misinterpretation. Misreading of a policy should be corrected in a timely manner."

— With assistance by Ting Shi, and Jeff Kearns

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