The sky is not falling on China's economy

With the bursting of the Chinese stock market bubble in July and the slight but unexpected depreciation of the renminbi, by about 4 percent in August, the world markets have panicked and doomsayers are coming out in droves to predict the imminent collapse of the Chinese economy. But the Chinese economy should be able to make a smooth transition to a "new normal", with an average annual growth rate of about 7 percent over the next few years, based once again on China's domestic demand.

The current "crisis" was a "crisis" of domestic and international confidence, caused by the slowdown of China's industrial sector and economic events such as the bursting of the stock market bubble and the attempted refinement of the foreign exchange trading mechanism.

Despite everything, it is unlikely that the Chinese economy will suffer a "hard landing", because the large and widespread excess production capacities in China's manufacturing industries will ensure aggregate supply so long as there is aggregate demand. Thus, the Chinese economy is not supply-constrained.