An estimated 12 percent of China’s GDP is grey income. The possibility of gaining wealth off the books has encouraged corruption at all levels, helped despoil the environment, and led to the decline of morality in China. Reform is needed.

State officials at every level have sought to wring instant benefits out of real estate in China, distorting the economy and setting banks up to fail. Now, the debate about China’s economy is no longer over whether the real estate bubble will burst, but when.

China’s economy is in crisis. Since June, investors have been preoccupied with the shortage of money in China’s financial system, but, while that shortage reveals much that is wrong in China’s formerly high-flying economy, the systemic problems go far beyond tight money.

While Chinese officials blamed the Dragon Festival for the banking systems sudden tightening of credit, the main causes are systemic and will not be remedied by the central bank’s recent injection of liquidity.

Deng Xiaoping’s order, to “Let some people get rich first,” was indeed carried out, but not without consequences.

The two policies at the heart of the Chinese economic model have been the over reliance on investment and exports, supported by artificially low interest rates.