Short-term interest rates in China’s interbank market jumped to historic highs last week. As well as creating turmoil in markets around the world, the move raised questions about the competence of the country’s management of monetary policy, its growth prospects and the trajectory of economic reform under the new leadership of President Xi Jinping and Li Keqiang, prime minister.

While rates have since come down, a view has taken hold that the People’s Bank of China was caught by surprise and was slow to react to the freezing up of short-term money markets. Some analysts even reckon there was a serious policy miscommunication – one that carries the risk of defaults on interbank payments and even the failure of some smaller financial institutions.

But such views are not well founded. The central bank was signalling that credit growth was excessive well in advance of the rise in rates. And the China Banking Regulatory Commission was issuing new regulations to curtail the growth of shadow banking. In particular it targeted controversial wealth management products – lightly regulated time-limited deposits with high interest rates – the financing of which is closely tied to the interbank market.