Zhu Rongji, the central bank governor from 1993 onward and, subsequently, the fifth Premier of China from March 1998 through March 2003, wielded a strong hand against government waste and corruption, and pursued tough but pragmatic macroeconomic policies that brought runaway credit growth under control and tamed 20% plus inflation in the late 1980s down to near zero by 2000. In the midst of the 2001-02 global recession, China's GDP grew at 7% to 8% p.a. However, as a strong, strict administrator, intolerant of flunkies, nepotism and a dilatory style of work, Zhu's tight rein created resistance.

His power faded well ahead of his mandatory retirement in March 2003. By 2002 a new team was already assigned as Zhu's replacements. Those officials and their network of business associates, unable to get their hands on enough bank credit under Zhu to fund pet projects/spending/investments, now had their chance. A renewed credit up-cycle began in 2002: bank loans as a percentage of GDP jumped from 90% at the end of 2001 to 110% by the end of 2003 (Chart 1). Fixed asset investment, in the high teens YOY in 2001, surged to over 45%+ YOY by 2003-04, and the ratio of loan-growth-to-GDP-gains jumped to 1.7x to 1.8x vs. under 1.0x during Zhu's reign. This period of easy credit drove the first major asset price inflation of the recent decade. The rich started to get richer.