Analysis: China leaders play safe on reforms as growth sags

Sun Jul 28, 2013 5:17pm EDT
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By Kevin Yao

BEIJING (Reuters) - For all the strong rhetoric, China's latest policy actions suggest a shift in focus on the economy to mix relatively pain-free reforms that burnish Beijing's credentials for change with measures to prop up sagging growth.

While Premier Li Keqiang provides a drip-feed of easy reforms, he will avoid more radical moves for fear of tipping the world's second-biggest economy over the edge.

Analysts from top government think-tanks say there is no reason to doubt the government's commitment to rebalancing China's economy away from an investment- and credit-driven growth model to one that relies more on consumption and innovation.

But the leaders are aware they are walking a fine line and the economy's weaker-than-expected performance this year has underlined the need to tread carefully. Reform may well secure future growth, but if they push too hard now they could cause an economic shock that forces Beijing to resort to old-school pump-priming, prolonging the very economic model they are trying to dismantle.

"The government has to safeguard its bottom line in growth, while restructuring the economy. It's very difficult to balance," said He Qiang, an economist at the Central University of Finance and Economics in Beijing and an adviser to parliament.

"Economic restructuring cannot be achieved overnight and it should be a gradual reform, not a revolution."

Since President Xi Jinping and Li were appointed in March to lead China they have pressed the reform message to wean the country off a diet of breakneck expansion and easy credit that fuelled double-digit growth for three decades and catapulted China to the top table of global economies.

Just last week Xi was quoted by the official Xinhua news agency on the need "to deepen reforms in all aspects" although he also acknowledged the line between "being courageous and walking steadily".   Continued...

A woman stands next to her apartment window in downtown Shanghai July 26, 2013. REUTERS/Carlos Barria