China: Searching for a new equilibrium

W E find that most observers tend to fall into one of two camps on China: the die-hard sceptics and the perma-bulls.

The sceptics are convinced that nothing about China - from the data to the banking system to the demographics - bears close inspection. This school of thought argues that the official numbers are too unreliable to follow, and the imbalances too large to warrant detailed analysis. Sceptics envision an implosion of the Chinese economy, resulting from a bubble in the housing market, in local government debts, in the stock market - or frequently in all three. In their view, the collapse is impending, and has been for the last 10 years.

The smaller group of China bulls takes an extremely benign view of the country's transformation. This group expects the China growth miracle to continue smoothly, with any moderation being only temporary. This camp tends to shrug off concerns about imbalances, arguing that China has more than enough money, the right policies in plac…