China is not a “bubble economy”, but it is an economy prone to bubbles. There is a big difference.
Over the past decade many have predicted imminent doom for China. They have been wrong. China’s economy has soared in the wake of the West’s financial crisis. In spite of this, risks have mounted. Rising wages and commodity prices are fuelling inflation. High food prices hit the poor hard. China has faced several challenges over recent decades and come out on top. Its institutions and policy tools have worked well. Now, its immediate challenges are more intense than ever.
First, the need to rebalance its economy is greater than before. China must shift from investment and exports towards consumption. This domestic imbalance has not improved in the past two years.