2/9 This will presumably change local-government incentives from encouraging more production to encouraging more consumption. According to China Daily, "Local governments, eager for economic growth and...

3/9 tax revenue, aggressively court the same favored industries with favorable policies. The result is a dangerous cycle of redundant construction, vicious internal competition, and ultimately, some oversupply situations."

4/9 "The existing system, with a reliance on taxes levied on industrial production, has been a cornerstone of China's rapid, investment-led growth model over the past decades. However, as the economy seeks more sustainable, consumption-driven expansion, it has lost its luster."

5/9 If China does change local-government incentives from being rewarded for more production to being rewarded for more consumption, this could indeed change the dynamics of the Chinese economy and finally begin to force a rebalancing from production to consumption.

6/9 But we should be very aware of the consequences. A China that significantly reduces subsidies and credit support for the production side of the economy is one in which a great deal of its production will be found to be very inefficient and much less competitive.

7/9 This will mean, as if has meant for every other country that has tried to rebalance domestic demand in the same way, much slower growth as it rebalances. This isn't a bad thing. It is precisely what China needs for its growth to become sustainable.

8/9 But it will also mean that China must either give up or significantly lower its GDP growth targets. Beijing cannot expect that if a change in tax incentives genuinely changes the focus from boosting production to boosting consumption, this won't affect growth.

9/9 Chinese policies of subsidies and credit support for the production side of the economy were not an accident, or an oversight. As China Daily notes, they were the "cornerstone of China's rapid, investment-led growth model", and have been fundamental to how the economy works.