China’s Two Big Economic Challenges
In the United States, as we saw in 2008, the job of reassuring the markets would rest with the Treasury Secretary and the head of the Federal Reserve. In China, where the policymaking apparatus is more opaque, the onus may fall on Premier Li Keqiang, who oversees economic policy and economic reforms; Zhou Xiaochuan, the longtime head of the central bank; or a lesser official. As is now glaringly obvious, the situation presents challenges to a Communist government that is used to pulling levers behind the scenes. Markets need clear guidance—even if the guidance is that the state is adopting a laissez-faire approach.
.. Looking at the economy as a whole, the rate of inflation has fallen from more than five per cent five years ago to 1.5 per cent in December. It is pretty obvious that there is a serious shortage of aggregate demand, which is depressing prices and generating a threat of deflation.
.. it is also worrying that the overall debt-to-G.D.P. ratio continues to climb—some estimates put it at two hundred and forty per cent