Dai lays out route for escape from jaws of economic collapse

Investment in the property market from 1991 to 1995 was 8.5 times higher than 1985 to 1990 . . . for a long time, state banks have given large amounts in policy loans and many are not recoverable.

The speaker could be the head of the Thai or South Korean central bank, but it was Dai Xianglong, governor of the People's Bank of China, speaking on Saturday to members of the National People's Congress.

It was the most frightening public explanation to date of how close China could be to following its Asian neighbours down the road of devaluation, bank closures, devaluation of assets and loss of public confidence in the financial system.

With a public frankness rare among senior officials, Mr Dai did not mince words: 'The danger of financial risk is serious . . . if we do not address the problems in our financial system, the result will not only mean we miss our great goals for the next century but also threaten our national economic security and social stability.' Such language has been used in closed government and Communist Party meetings but rarely in public, in a country with a tradition of public scepticism towards the government and the currency.

The reason for this frankness is the Asian financial crisis, which has shocked mainland leaders.

The biggest shock was South Korea, whose model of corporate capitalism was one admired by many in the mainland government. They also want to see a small number of state-owned conglomerates dominate the economy, giving them a modern and market-driven economy controlled by China and not by foreign multinationals.