China's trade surplus as a percentage of GDP is shrinking. Hence, growth will have to come from domestic demand. The government has tried all sorts of tricks to boost this, but it can't change people's habits overnight. The Chinese people are savers. More so perhaps today than ever before. There is no welfare net to catch them, and the one-child policy has left them with too few children to fall back on.
Money supply rose markedly in May and recent years' credit growth has surpassed even that of the U.S. in the period leading to the Lehman collapse.
Unfortunately, instead of being put to good use, much of that money has ended up in the hands of wasteful state-owned enterprises, or SOEs. Meanwhile, cash-starved private entrepreneurs have watched quietly from the sidelines, unable to participate in Beijing's ragin', capital-misallocatin', credit-fueled investment boom.
These episodes have revealed to the world—and to a sizable portion of the Chinese people—a culture of greed, violence, and deceit at the highest levels of government. The Communists’ power is not in imminent danger, but their legitimacy is.