Michael Pettis is one of the smartest guys alive covering China - well worth a read. Though I wonder if he thinks the demand-side issues are truly fixable in any systematic sort of way (ie, he doesn't seem like a Scott Sumner type) - can we shift the basic nature of an economy?
If you haven't already you should read his book, Avoiding the Fall, there are a number of prescriptions inside it on how to go about rebalancing the Chinese economy. It's really well written (as is his blog, especially this post). The central thesis of the book is that the Chinese economy has low consumption as a total proportion of their GDP due to a number of hidden subsidies that transfer wealth from households to businesses and governments in China.
He argues that by removing these subsidies China can rebalance their economy from an investment driven one to a more consumption driven one and achieve a 'rebalancing'. Some subsidies are governments fixing bank interest rates for lenders and depositors (in a way that takes money from depositors to subsidise borrowers) and artificially pegging the exchange rate, which penalises households (who typically in urban settings rely on imported goods) and subsidises businesses (many of whom export their goods).
My economics knowledge is generally self-taught and I don't have the book in front of me so you'll have to forgive any errors - but hope that helps!
Wow, this is a long read but definitely worth it. I have never read anything by Pettis, but I am thinking about picking up The Great Rebalancing if it explores similar stuff more deeply. It doesn't always come naturally to look at country economies as a bunch of open systems all operating in a closed system, but this read will certainly encourage that kind of thinking.
His book "The Volatility Machine" was one of the best I have ever read on global macro. Perhaps due to publication timing, it's managed to stay under the radar.
