Analysis-Can China maintain growth and 'transform' its economy at the same time?

investing.com:

By Joe Cash, Ellen Zhang and Kevin Yao

BEIJING (Reuters) — Chinese Premier Li Qiang's vision for the country contains an inherent contradiction: his aim to «transform» the economic model may be incompatible with keeping growth rates steady at around 5%.

In his maiden work report to China's parliament on Tuesday, Li pledged to expand domestic consumption, while curbing industrial overcapacity, local government debt risks and supporting only «justified» property sector projects.

These promises, in isolation, would be music to the ears of those who have been calling on China to fix its deep structural imbalances, including its high reliance on debt-fuelled investment and ultra-low household spending.

But municipal debt for infrastructure projects, real estate excesses and manufacturing investment have been among the key pillars of China's economic rise. Curbing them implies accepting lower growth as well in the short term, analysts say.

«It is a contradiction, coupled with an omission,» said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis. «They are not explaining how they are going to transform the economy.»

China has been here before: in 2013, President Xi Jinping unveiled a slate of bold economic and social reform plans in a 60-point agenda that painted a long-term picture of free markets and consumption-driven growth.

Since then, however, China had tightened its capital account and market supervision, and doubled down on state-led investment.

A muted market reaction to Li's pledges on Tuesday contrasts with the 2013 rally that followed Xi's reform agenda. Investors and consumers have become sceptical about implementation, which risks exacerbating a confidence crisis abroad and at home.

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