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Although China has taken positive steps to address the debt burdens of local governments, it remains to be seen how it will repay that debt. Meanwhile, the increase in international trade denominated in RMB is likely being driven largely by speculative demand.
As the world’s predominant political, economic, and military force, the United States faces a significant challenge in responding to China’s rising power and influence, especially in Asia. This challenge will require more effective U.S. policies and a reassessment of America’s fundamental strategic assumptions and relationships.
In order to reconcile the current dominance of coal in China with the country's carbon reduction goals, Beijing has expressed interest in carbon capture and storage technologies, which are still in a nascent stage of development.
Inflation poses a particularly significant challenge to China's leadership, since it can both incite broad-based dissatisfaction among diverse social groups and create fissures among the ruling elite.
China’s economic growth model, which relies on low interest rates to stimulate investment, resembles that of a large development bank. However, China's weak fiscal system threatens the sustainability of this model.
The recent Fukushima Daiichi crisis has prompted the State Council of China to temporarily halt approval of new nuclear plants pending a comprehensive safety review. The outcome will have major implications for China’s nuclear industry and for its entire energy future.
In spite of nominal changes in the value of China’s currency and domestic interest rates and wages, China’s economy remains unbalanced, as real interest rates continue to outpace real wages and any real appreciation of the renminbi.
As China becomes an increasingly motorized country, Beijing must enact new policies to address the challenges presented by congestion, pollution, and fuel dependence.
Persistent imbalances in China's economy are likely to pose a serious threat to the country's growth unless Beijing significantly revalues its currency, raises real interest rates, and continues to increase wages.
China must not only reform its income tax system, but also enact policies to increase labor wages, redistribute wealth, and fight corruption if it is to significantly reduce income inequality.