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Wednesday, June 3, 2015, 11:21

China faces short-term pain for long-term gain

By Agencies

China faces short-term pain for long-term gain

SHANGHAI - China's economic growth, already at its slowest in decades, will get worse before it gets better, as economists say it will take time before liberalising reforms turn net positive, and Beijing needs to bite more such bullets for a sustainable turnaround.

At his annual news conference in March, Premier Li Keqiang compared the pain of governmental self-reform to "taking a knife to one's own flesh". He said the pain must be endured, both to limit power and to invigorate the market in an economic slowdown.

GDP growth slowed to 7.4 percent last year, its weakest since 1990, and Beijing is calling for around 7 percent growth in 2015. The IMF recently predicted 6.8 percent growth this year, and 6.25 percent in 2016.

That's still a ripping rate for a US$10 trillion economy, so few economists believe a crisis is imminent, but even fewer believe an upturn is around the corner, as reform itself is partly responsible for the slowdown.

"For this year, unfortunately, we have not seen the bottom," said Wang Jun, economist at the China Center for International Economic Exchanges, a think-tank set up to help Beijing navigate choppy waters after the global financial crisis.

"Growth should stabilise, but it's hard to judge for next year because that depends on the progress that we make in structural adjustments."

Though Beijing has repeatedly cut interest rates and freed banks to lend more, that has done more to fuel debt-funded stock market speculation than spur productive investment.

The resilience of the stock market surge is in part a recognition that government will have to keep injecting fresh cash, since nearly every indicator of economic performance has been lacklustre or worse in 2015, with manufacturing output sliding, deflationary pressure rising, and demand weak both at home and abroad.

Unemployment, a key benchmark of social stability, remains low at around 4 percent, but even officials doubt the reliability of that figure.

Private surveys show rising unemployment stress, and local governments are moving to protect jobs at state-owned enterprises.

Officially, non-performing loans remain manageable at below 2 percent, but most analysts believe real rates are far higher, since many firms and local governments tapped the opaque shadow banking market.

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