No pain, no gain for China's reformers

When doctors ask a patient to weigh a decision on treatment, it usually signals something really serious.

Now is the moment for China to tell anyone with a business interest in the country what course the nation means to pursue as it treats the economy's ills. Will it cure the disease or just alleviate the symptoms?

All signs suggest that China is opting for a thorough cure - meaning it will struggle through a long incremental process of reform without entirely sacrificing growth.

It's a highly risky process. Reform must be effective. Growth must be real. And most importantly, reform can't be allowed to stifle growth - and preserving growth can't be allowed to interfere with reform, resulting in the same old waste, pollution and corruption. Can China do it?

Officials admit that the economy has, over the years, developed many symptoms of ill health. It's leaned too heavily on its old development strategy - namely, a system where local governments keep selling off land rights to developers and using that revenue to keep expanding the local capacity to manufacture for the export market.

In the 1990s and early 2000s, the strategy worked brilliantly. But that strategy has run its course - in both selling off land for higher prices and building capacity to produce for higher demand.

With "ghost towns" scattered throughout the land and idle industrial capacity that doesn't generate any extra revenue (let alone profit) the economy has obviously reached the point where correction is necessary. That means slashing apartment prices in empty towns, shutting down unprofitable factories and shifting focus to the domestic market, especially diverse social programs that will serve China's own vast mass of people.

Now the question is how all this gets done. Treating just the symptoms would mean a hard economic landing, starting with a "Lehman moment", as some would say, followed by the knock-on effects of a collapse.

A crisis of that kind would be a "shock therapy" for the economy. But it might inflict too much pain, both social and economic, for the country to bear. And the country's economic planners favor incremental change, in any case. They've clearly opted for a slower but more thorough cure.

Yes, there will be defaults by funds tied to unfinished property projects. There will be bankruptcies of companies burdened with excess capacity. There will be banks with ugly balance sheets - and runs on small financial institutions.

Some cities, and some industries, will have to endure almost as much distress as they would under shock therapy.

But the worst outcomes will be limited to the regional level. And the authorities won't let them trigger a chain reaction.

On the national level, major indexes, such as inflation, will be kept within the public's comfort zone as reform is methodically carried out.

Most importantly, as Premier Li Keqiang said two weeks ago, as the economy keeps growing, it will also generate new jobs.

A thorough cure means it could take a long time for the patient to feel better. Judging from the immense task China faces, it's going to be another two years, at least, before change can be quantified in the central government's statistical reports.

Some assets, valuable just a few years ago, will become useless. The money that was spent on them, and their contribution to GDP, likewise will vanish.

Those assets will include costly building projects in cities that never find a niche and industrial facilities unable to compete in the world.