No pain, no gain for China's reformers

By Ed Zhang (China Daily) Updated: 2014-03-31 07:50

A housing sales office in Shenzhen. Property industry has been one of the key engines promoting China's economic development. MAO SIQIAN/XINHUA

Now the question is how all this gets done. Treating just the symptoms would mean a hard economic landing, starting with a "Lehman moment", as some would say, followed by the knock-on effects of a collapse.

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A crisis of that kind would be a "shock therapy" for the economy. But it might inflict too much pain, both social and economic, for the country to bear. And the country's economic planners favor incremental change, in any case. They've clearly opted for a slower but more thorough cure.

Yes, there will be defaults by funds tied to unfinished property projects. There will be bankruptcies of companies burdened with excess capacity. There will be banks with ugly balance sheets - and runs on small financial institutions.

Some cities, and some industries, will have to endure almost as much distress as they would under shock therapy.

But the worst outcomes will be limited to the regional level. And the authorities won't let them trigger a chain reaction.

On the national level, major indexes, such as inflation, will be kept within the public's comfort zone as reform is methodically carried out.

Most importantly, as Premier Li Keqiang said two weeks ago, as the economy keeps growing, it will also generate new jobs.

A thorough cure means it could take a long time for the patient to feel better. Judging from the immense task China faces, it's going to be another two years, at least, before change can be quantified in the central government's statistical reports.

Some assets, valuable just a few years ago, will become useless. The money that was spent on them, and their contribution to GDP, likewise will vanish.

Those assets will include costly building projects in cities that never find a niche and industrial facilities unable to compete in the world.