China set a lower growth target of “about 7 per cent” at last week’s session of the National People’s Congress. It was a signal that, while the double-digit growth years may be over, Beijing remains confident that the world’s biggest economy will continue to enjoy healthy rates of expansion. The truth is that outcomes will more likely be determined by an important contradiction in economic development strategy than any official pronouncements.

According to a report presented by Premier Li Keqiang, China needs to find the “right balance between managing debt and maintaining steady growth”. At first this seems sensible enough; in reality there is a fundamental inconsistency between the objectives.

[I THINK THAT THIS PAR NEEDS A BIT OF SIMPLIFICATION. NON-ECONOMISTS MAY FIND THEMSELVES STRUGGLING] China’s economic expansion is in-creasingly dependent on high rates of credit creation. The pursuit of 7 per cent growth, therefore, will entail a further rise in the share of credit as a proportion of national income. The debt to gross domestic product ratio has nearly doubled since 2008 — and would do so again over fewer years because the level of debt is higher while GDP growth is lower. Rising debt levels, together with overcapacity in property and several important industries and mounting deflationary pressures threaten both financial and economic stability.