The conflicting internal tensions in Chinese economic policy were brought to the fore in a couple of Wall Street Journal reports this week.
On the one hand, China's Premier, Li Keqiang said the economy needs to grow at 7.2% to keep unemployment stable. On the other, the head of China's central bank called for faster and more comprehensive banking reform.
Unfortunately, these are to a significant degree mutually exclusive ambitions.
The Chinese economy is dependent on massive amounts of investment. Chinese infrastructure spending grew by nearly 30% in the first nine months of the year, while overall investment expanded by more than 20%. Indeed, domestic investment makes up around 54% of Chinese GDP growth compared with only around 45% for consumption. By contrast, consumption represents at least 60% of economic output in most other regional economies and well over 70% is typical of developed countries.
This devotion to growing domestic industrial capacity has been sustained by a huge borrowing binge--so far this year lending growth has outstripped last year's rate. Yet it has produced less economic growth.
China's economy is expected to expand 7.6% this year following 7.7% last.
Worse still, the credit expansion has raised questions about the banking sector's underlying stability. Anecdotal reports of vast swathes of empty property, politicians' glamour projects, poorly built or pointless infrastructure suggest significant amounts of misallocated capital and thus plenty of bad debts being stored up on banks' balance sheets.
Zhou Xiaochuan, governor of the People's Bank of China, was reported to have rebuked senior government officials last year for failing to restructure the country's financial sector and for not doing enough to shift the economy away from investment and towards consumption.
Unfortunately, however good Mr. Zhou's intentions, the practical matter of rebalancing the Chinese economy will be hard.
Chinese economic growth is likely to trend down anyway, but any shift away from credit-driven investment to consumption will merely accelerate the process, according to Michael Pettis, a professor at Peking University.
Perhaps alarmingly for Mr. Li and his senior cadre, Mr. Pettis has argued that Chinese growth would more likely dip closer to 3% towards the end of the decade.
Plenty of China bears have been forecasting a bust in the Chinese property market and a financial crisis for years now. And China has continued to buck the pessimism. Whether it continues to do so depends on how compatible Mr. Li and Mr. Zhou manage to make their seemingly opposing goals.
《华尔街日报》(The Wall Street Journal)本周的一连串报道凸显出了中国政府内部在经济政策问题上的分歧。