How will China's bubble end?

Overview

How will China’s new leadership cope with threats to financial stability posed by rising inflation and growing bubbles in the domestic economy?

A “muddle-through” strategy appears likely, preserving the current orientation of economic policy but with ad hoc interventions and controls. But “muddling through” faces two principal vulnerabilities.

One is the inevitable emergence of excess capacity, although this still appears a few years off. More worrisome in the near term is the...