How bad is the ‘China problem?’

OVER the past several months it has become quite obvious that the Chinese economy is “cooling.” The Chinese themselves refer to it as “the new normal,” an environment in which the economy is supposed to be more domestically focused, growing at a rate closer to 7 percent per year than the 9 or 10 percent pace of the past several years.

Because China is so unpredictable, it was difficult at first for outside observers to reach a consensus about whether Chinese policymakers were describing a legitimate, sensible policy direction or trying to put lipstick on a pig. The general feeling was that it would be the latter if it were the leadership of any other country prattling about “the new normal,” but because China’s performance has defied conventional wisdom so often, no one could be really confident in predictions of the Friendly Red Giant’s imminent demise.