China — the world’s second-largest economy — is in the midst of a lengthy period of deflation. China’s leaders know it. They’re just not doing enough to fix it.
They have been lauded for releasing a stimulus package that would ease interest rates, help local governments tackle their debt loads, inject more liquidity into state banks and direct some cash payments to consumers, especially those with two or more children. The announcement of this package on Sept. 24 — with no total price tag attached — sparked a brief rally on China’s stock market. Additional measures were unveiled last week. Finally, the government seemed to be doing something, anything, to address the economic slowdown.
But the actions announced so far are the low-hanging fruit. The interest rate cut followed the U.S. Federal Reserve’s move, which gave China’s central bank more room to maneuver. Cash handouts for families with multiple children bolster the government’s drive to reverse a demographic decline. And China needs to do something about the piles of debt that local governments have racked up if the country is to have any hope of reaching this year’s ever more elusive growth target.
The real problem with China’s economy, though, is the same one that economists, diplomats and government........