Observers of the Chinese economy can be forgiven for their puzzlement over an apparent paradox. While China undoubtedly now has its most powerful leader since Mao Zedong, the country's economic policy appears to be defying the wishes of the new strongman, Xi Jinping, general secretary of the Chinese Communist Party. Take, for example, the progress of radical structural reform, which is part of Xi's blueprint for an ambitious overhaul of the economy. Since its much heralded unveiling in late 2013, little structural reform has happened. Worse still, in recent months, the Chinese government has adopted policies obviously aimed at maintaining short-term growth at the expense of long-term structural reform.
For instance, instead of forcing zombie companies into bankruptcy and channeling resources into consumption, Beijing has once again opened the credit spigot to fund fixed-asset investments -- mainly infrastructure -- and keep moribund companies, most of them state-owned, on life support. In the first quarter alone, according to the People's Bank of China, Chinese banks increased their loans by a mammoth 4.67 trillion yuan ($720 billion), a new record.
