China Loses Control of Its Frankenstein Economy

June 25 (Bloomberg) -- The world has grown used to the ideathat China’s leaders are masterful stewards of their gargantuaneconomy. They steered brilliantly around the iceberg of the 2008financial crisis, maintaining growth of near-double-digit rates.So when People’s Bank of China chief Zhou Xiaochuan beganclamping down on excessive liquidity last week, some observersviewed him as a Chinese Paul Volcker. Now that the worst wasover, Zhou seemed to indicate, it was time for China to rein inlending and prevent a credit bubble from swelling.

Then reality intervened. After the overnight repurchaserate zoomed to a record 13.91 percent, Zhou had to back off,hastily injecting fresh funds to stem the turmoil. The chaostraumatized money markets. Some were dismayed by signs that Zhouwould end the era of easy money in China. Others feared that hecouldn’t.