A Failure of Policy

China's economy has slowed significantly since mid-2011. The growth rate of electricity consumption has roughly halved in two quarters. The property bubble, local government debt overhang and euro zone crisis have significantly cut demand. The slowdown itself, however, shouldn't be viewed as a bad thing.

Despite reporting strong growth in 2011, the stock market significantly underperformed other markets. It shows that China's growth has too much waste in it. Hence, businesses are not adding value as growth would normally do. Such inefficient growth leads to inflation.