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, a major domestic newspaper said yesterday, 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 of the People’s Daily.

    China’s 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 signal that China will 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 paper has cited “an authoritative person” to discuss top-level economic policies. (SD-Agencies)