No, China Isn't Really Rebalancing

China's leaders have rarely missed a chance to say China must accept slower growth. But all they've done is add more and more stimulus to the already dangerously imbalanced economy.
Despite talk of slower growth, China keeps building. Photographer: WANG ZHAO/AFP/Getty Images

"Tolerance" and "slowdown" clearly mean something different in Beijing's dictionary.

Since November, when the Communist Party announced epochal reforms, President Xi Jinping and Premier Li Keqiang have rarely missed a chance to say China must accept slower growth. Downshifting to a "new normal" is a necessary evil to regear the economy's growth engines to services. Six months on, all they've done is add more and more stimulus to ensure no end to massive investment and exports.

The first sign of slowdown intolerance came in early March when China did what optimists hoped it wouldn't: announce another growth target. Every time data have suggested gross domestic product might slip below that 7.5 percent line, Beijing has been quick to rev the engine yet again.

Stimulus measures have included tax breaks, bigger investments in housing, faster spending on railways and other megaprojects, and front-loading of outlays at the provincial level. China's largest regional economy, Guangdong, is allocating more than $10 billion to boost growth. The National Development and Reform Commission, the central economic-planning agency, is mulling a $16 billion-plus fund for transportation that will solicit some private investment. The central bank, meanwhile, has eased up on its war against excess credit, and the shadow-banking system is still enabling inefficient state-owned enterprises across the nation.

Does any of this sound like the actions of government ready to let GDP fall to 6 percent, let alone 5 percent? Hardly, which is why economists at Nomura and UBS are rethinking second-quarter growth forecasts. Credit Agricole economist Dariusz Kowalczyk reckons that the stimulus steps that we know about -- I'm figuring there are many we don't -- will add 1 percentage point to Chinese growth.

All this flies in the face of slowdown pledges and, by extension, restructuring efforts. The economy must decelerate to rein in the excessive borrowing that Marc Faber, publisher of the Gloom, Boom & Doom report, calls a "gigantic credit bubble" and hedge fund manager Jim Chanos of Kynikos Associates is shorting. Some politically connected companies will have to be allowed to default, slamming asset markets. Xi and Li will have to stand by as fellow Communist Party leaders watch their net worth dwindle along with property prices. GDP will need to take a further hit as Beijing clamps down on the coal-burning factories and cars poisoning the air.

Yet none of this is happening. Instead, Beijing is pulling out all the stops to do what Xi and Li have vowed not to do. The People's Bank of China, for example, is asking lenders to approve mortgages faster and seems poised to continue "targeted easing," including reserve-ratio cuts for some banks and bond purchases. Those are hardly the actions of monetary authority withdrawing excessive liquidity. What's more, economists at Nomura and Standard Chartered are predicting a nationwide reserve-ratio cut next quarter. Barclays thinks the odds of a significant monetary easing in coming weeks, such as "targeted" interest-rate or reserve-ratio reductions, are rising.

So at a minimum, let's stop talking about China's "slowdown" as if it's a real thing. If Xi and Li are really ready to tolerate the deceleration needed to fix China's problems, they wouldn't be fighting one before it even begins.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.