If the old illusion about China was that it was growing strongly then the new illusion is that it has the resources to stimulate its economy to maintain that growth.
Almost all of China's growth since 2008 has come from government-influenced expenditure. The Chinese growth story is reminiscent of the debt-fuelled US economy after the recession of 2001-02.
China's headline growth of 8-10 per cent has been driven by new lending averaging about 30-40 per cent of gross domestic product. Up to 25 per cent of these loans may prove to be non-performing, amounting to losses of 6-10 per cent of GDP. If these losses are deducted, then Chinese growth is much lower.
As growth slows, Beijing's options to re-ignite growth are increasingly constrained. The weakness of its major trading partners, the US and Europe, means China cannot rely on its traditional strategy: export demand to drive growth.
Read more: RealClearWorld - China Knows the Party Can't Last Forever
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