More to be done to expand consumption

The economies of the United States and China - indeed, the entire global economy - are suffering from weak aggregate demand, which is creating deflationary pressures. As central banks attempt to combat these pressures by lowering interest rates, they are inadvertently causing re-leveraging (an unsustainable growth pattern), elevated asset prices (with some risk of a downward correction given the slow growth), and devaluations (which merely move demand around the global economy, without increasing it).

For China, which to some extent still depends on external markets to drive economic growth, this environment is particularly challenging - especially as currency depreciation in Europe and Japan erode export demand further. Even without the crisis in major external markets, a large and complex middle-income economy like China's could not realistically expect growth rates above 6-7 percent.

Investment can sustainably drive growth only up to the point when returns decline dramatically. In the case of public-sector investment, that means the present value of the increment to the future GDP path (using a social discount rate) is greater than the investment itself.