The decision of China's sovereign wealth fund to buy shares of four of the country's biggest banks is a warning signal. The move to prop up the plummeting value of those institutions is intended to boost confidence; instead, it has highlighted the many unknowns that dominate the country's financial system. China's leaders (and bankers) are understandably nervous about shedding more light on its dark corners, but failure to do so will only increase the pain when a future shock comes.

Many observers insist that China's economic dynamism is unsustainable. Double-digit growth is easy — with the right policies — when starting from a low base. The trick is maintaining that pace. Rapid growth often sows the seeds of its own undoing as prices increase, inflation takes root and bubbles pop up. This natural process has been accelerated by the massive $600 billion stimulus that the Chinese government pumped into the economy in 2009 after the global downturn. Much of that money appears to have been misspent and the banks — the instrument of that stimulus — have to account for the losses.

Chinese central government officials understand the problem. But they have limited power to control an economy of China's size. Local officials have plenty of incentives to disregard directives from Beijing to slow lending. Growth provides jobs, creates taxes, enhances their own standing at home and in the party hierarchy (and puts money into the pockets of the more corrupt individuals). In honest moments, top Chinese officials concede that they cannot trust statistics from local and provincial governments and in the absence of accurate information, they cannot make policy.