China’s economy defies analogies. Just as its growth over the past four decades was unprecedented, its current difficulties — and it certainly has a problem, if not quite a crisis — are unique. It is not Japan in 1990, Korea in 1997 or the US in 2008. China does not face a financial crisis or a balance sheet recession; indeed, with growth still roughly on course to reach 5 per cent this year, it does not face a recession at all. Nonetheless, the situation is serious. In the past, the Beijing authorities have shown great flexibility and ingenuity to keep growth on track. Now they must do so again.

The current situation is characterised by a chronic lack of demand, even as the economy grows. Two statistics illustrate this. One is the consumer price index, which is on the brink of deflation: prices in June were flat year-on-year and down 0.2 per cent compared with a month earlier. The other is youth unemployment, which reached 21.3 per cent in June. This is clearly an economy where spending is not sufficient to occupy all of the productive resources available. One might call it “recessionary growth”.

The danger from here is a deflationary spiral downwards, and the danger is real because no sector in China is well placed to spend more.