Brakes and throttles

But this year's session of the National People's Congress (NPC), was remarkable in one sense: there was a genuine, spirited debate about an issue close to many delegates' hearts – overheating.

To the uninitiated, "overheating" may sound a trifle abstract for such a body. But in fact, the debate was anything but abstract. Many delegates, especially those involved in local government or in running large enterprises, seized on the NPC session as a chance to lobby Beijing against economic austerity.

Interviewed under the imposing colonnades of the Great Hall of the People, delegate after delegate told journalists that although there may be overheating in some parts of China, there was no evidence of it where they came from. It was wise, company bosses said, for Beijing to call for the closure of old, inefficient and polluting industrial capacity, but their own factories – without exception – were clean, profitable and needed to expand.

Herein lies one of the challenges that China faces as it tries to moderate a blistering pace of economic growth, especially in industries such as steel, cement and aluminum. As the central government tries to touch the brakes, the localities are reaching for the throttle. This is particularly pertinent because in spite of 25 years of capitalist reforms, Beijing has chosen to engineer an economic slowdown by relying on old-fashioned administrative fiat rather than free-market levers such the manipulation of interest and exchange rates.

If the provinces do not obey the center, then the center's line may not hold. If inflationary pressures build further from now – and especially if the consumer price index rises above the bank lending rate – then the central bank may be forced to raise interest rates. That could turn the orderly moderation in growth that Beijing envisages into a more emphatic downturn.

So far, the government's response to the potentially disruptive impact of rising prices has been to try to boost the supply of goods experiencing pronounced inflation. Farmers are being encouraged to plant more grain. New railway lines and roads are being built to address transport bottlenecks. A frenzied construction of power stations is underway to alleviate a widespread electricity shortage. Coal miners are being exhorted to dig more coal.

But ultimately, the fruits of such labors will not be evident until late this year at the earliest. Until then, there is a real risk that inflation may rise to uncomfortable levels and the best-laid plans for an orderly, government-ordained economic slowdown may struggle to materialize.

After all, the delegates have spoken.