Adair Turner writes:  Improved market discipline in China does have an important role to play in addressing the structural causes of imbalance. Wasteful construction investment is encouraged by the under-pricing of rural land. The lack of a normal ownership relationship between the central government and state-owned enterprises (SOEs) allows the latter to pay minimal dividends and over-invest in business expansion. Caps on interest rates on bank deposits result in household savers supplying a large subsidy to corporate borrowers. And SOEs have better access to credit from state-owned banks than private companies do.

Two distinctively Chinese factors and one inherent feature of all banking systems interact.  The first Chinese factor is the authorities’ focus on “urbanization” as an end in itself, rather than as a byproduct of industrialization. The second is China’s decentralized approach to economic development, with strong competition between regions and cities often focusing on prestige urban infrastructure projects.