That's what I think of the three main issues worrying the financial markets.
Let's begin with a test about the state of China's economy.
Does China have an inflation problem? No, the reported headline price inflation in December was 1.9 percent. That's what hits the Chinese real purchasing power and determines the scope of discretionary monetary policy. Again, that's the headline rate because Beijing does not play around with an array of manipulative inflation "measures." For last year as a whole, China's inflation was 2.1 percent — a number that would even pass the price stability test from the Bundesbank's stern taskmasters.
Is China having a problem of bad public finances? Perhaps a spot of a local difficulty, as the Brits would say, but nothing that China's 46 percent gross savings rate can't handle. Broadly defined public sector accounts are expected to show a budget deficit of about 3 percent of GDP for the last calendar year, and the gross public debt is currently estimated at 46.3 percent of GDP. The debt could be a significant underestimate, but only China knows the truth about that, partly as a result of its own methodology of defining and measuring national accounts.
Does China need to import foreign savings to finance its public debt and budget deficits? No, China is a net capital exporter to the tune of 1.2 percent of its GDP.