China's government is engaged in the economic equivalent of holding its nose and swallowing nasty medicine, dosing up on investment spending, local government debt and real estate sales to push up growth.
Eight months of policy fine-tuning have yet to arrest an economic chill lasting six successive quarters and at risk of infecting a seventh, forcing Beijing to opt for near term expedients to boost growth ahead of a once-a-decade leadership transition later this year.
It's not easy for a government sensitive to the social impact of inflation and speculation set off by its last investment binge in 2009-10, which priced millions of middle class Chinese out of city centre property markets.
But the apparent recoil by Beijing from the pursuit of economic rebalancing that eschews short-term spending on more infrastructure capacity in favor of policies promoting services and consumer-driven growth simply highlights the urgency for more reform.
"Because consumption is still only 35 percent of GDP, the reality of that being able to drive the economy when fixed asset investment is falling and industrial production is slowing is unlikely," Jeremy Stevens, Beijing-based China economist at Standard Bank, told Reuters.
"In fact the ability of the government to massage and orchestrate economic momentum is less than it was two years ago because it is now more reliant on the corporate sector and that is struggling," Stevens said. "It does mean that they are having to look at things they didn't want to do six months ago."
Read more: http://www.reuters.com/article/2012/07/15/us-china-economy-idUSBRE86E0GF20120715
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