Can party wean itself off growth at all costs?
Mainland government is committed to economic reforms but the question is whether the Communist Party can wean itself off growth at all costs
In a rare mention of the Tiananmen crackdown in the mainland press, the state-run Global Times recently argued that the past 25 years of economic expansion proved that Beijing was right to suppress political dissent in 1989.
The piece pointed to social and economic upheavals in places like Eastern Europe and Egypt as examples of the chaos that can ensue when the leadership is not strong - unlike the Chinese Communist Party which fought for "28 years" before gaining control of the state.
"There is no doubt that the [party] made serious mistakes in its early years as the ruling power," the Global Times said last week in an article that appeared in both the English and Chinese versions of the newspaper. "But since the 1980s, China has got back on track."
It would seem hard to argue with growth that at one point remained above 10 per cent for a decade, pulling millions of Chinese out of dire poverty and creating an urban middle class.
But if economic growth is seen as proof that the party is the rightful custodian of the modern state, then the flip side is that faltering growth would indicate illegitimacy.
And herein lies one possible, if cynical, explanation as to why excesses were allowed to build up in the mainland economy in the past couple of decades.
President Xi Jinping and Premier Li Keqiang came to power last year vowing to roll back the excesses, and dismantle the "growth at all costs" paradigm, warning that this might come at the cost of some short-term pain.
Besides cracking down on corruption and stamping on outward displays of wealth by party officials - like splashy banquets or flash cars - the new leaders initially reinforced existing curbs on the property and credit markets.
These moves seemed justified by concerns that years of cheap credit had created an overinvestment bubble, which if allowed to continue expanding would only lead to a more dreadful reckoning further down the line.
However, it did not take long before China's new, supposedly more fiscally conservative leaders blinked. Beijing has been in "mini-stimulus" mode for several months now, and many analysts expect the pump-priming will be extended well into the second half of the year.
As Bank of America Merrill Lynch said in a recent research report: "We believe the new government's top task is cracking down on corruption and consolidating power, and that's why they need a stable economic and financial backdrop. With deep pockets and low inflation, its commitment to achieving the 'around 7.5 per cent' growth is quite credible, in our view."
One issue is that Xi's anti-corruption campaign has had some unintended consequences, in the form of government gridlock. Apparently many government officials have been frozen in fear, wary of approving new projects or initiatives until everyone figures out just what constitutes "violating party discipline" under the new regime.
This has acted as a brake on fiscal and business activity, heightening the risk economic growth will undershoot Li's soft target of 7.5 per cent. Thus the "mini-stimulus" was launched to offset the fiscal gridlock.
Earlier in the summer, the IMF proposed a simple solution: that Chinese leaders simply lower next year's growth target to something in the 6.5 per cent to 7 per cent range. That would be better, the International Monetary Fund said, than relying on more and increasingly dangerous stimulus to meet the current growth target.
If Li followed the IMF's advice, he could return to the agenda of a tighter, more efficient distribution of capital, without losing face over a missed target.
The problem is, this might not just be about meeting targets. Indeed Li himself has said that there is "tolerance" in the leadership for the economy to undershoot or overshoot the target.
This may really be a case of China's new generation of leaders being as addicted to "growth at all costs" as their predecessors.
If so, the current run-up in mainland assets should continue, as monetary conditions will remain accommodative, and Li is unlikely to puncture the party with a dour growth target early next year.
In the short term, this is rosy. On the mainland, easy financial policy is more closely correlated with asset price rises than economic growth. But in the long run, it raises the stakes that any eventual financial crash will be all that much greater.