IN THE pantheon of economic clichés, the concept of “short-term pain for long-term gain” is surely a contender for top spot. It is trotted out again and again when discussing why Country X must undertake such and such difficult reforms to reap untold benefits down the road. For those analysing or reporting on the Chinese economy, it has become a familiar refrain. This does not mean it is wrong; China’s old growth model of credit-fuelled investment has led to a vast accumulation of debt and a big drop in productivity. Change is needed, even though there will be costs. But being a cliché, it can obscure details. What exactly is this short-term pain?

To start, one thing that should be clear: China has so far felt little in the way of pain. Although some regions, especially the north-east, have endured a tough few years, China has kept defaults to a minimum and held its credit spigot wide open. Thanks in large part to that, the economy grew 6.7% in the third quarter from a...Continue reading