China’s consumer price index (CPI) and producer price index (PPI) data suggest that China is facing deflationary pressures. Beijing must tackle the country’s debt and create alternative sources of demand to address them.
Policies that affect the savings rate of a small country can have more-or-less predictable domestic impacts because the global economy is so large that domestic policies are not affected by external constraints. But with a large economy, the analysis changes.
Unless Japan moves quickly to pay down debt, perhaps by privatizing government assets, Abenomics will be derailed by its own success.
It may be useful to think about Japan as a model for understanding the adjustment process in China, since the Japanese model shows how risky it is to shift to a slow-growth model.