[crapshoot101]

Michael Pettis is one of the smartest guys alive covering China - well worth a read. Though I wonder if he thinks the demand-side issues are truly fixable in any systematic sort of way (ie, he doesn't seem like a Scott Sumner type) - can we shift the basic nature of an economy?

[jval]

If you haven't already you should read his book, Avoiding the Fall, there are a number of prescriptions inside it on how to go about rebalancing the Chinese economy. It's really well written (as is his blog, especially this post). The central thesis of the book is that the Chinese economy has low consumption as a total proportion of their GDP due to a number of hidden subsidies that transfer wealth from households to businesses and governments in China.

He argues that by removing these subsidies China can rebalance their economy from an investment driven one to a more consumption driven one and achieve a 'rebalancing'. Some subsidies are governments fixing bank interest rates for lenders and depositors (in a way that takes money from depositors to subsidise borrowers) and artificially pegging the exchange rate, which penalises households (who typically in urban settings rely on imported goods) and subsidises businesses (many of whom export their goods).

My economics knowledge is generally self-taught and I don't have the book in front of me so you'll have to forgive any errors - but hope that helps!