China's leaders must cope with an asymmetry between what they can deliver and what consumers demand.

China now faces the same debt-deflation challenge that much of the rest of the world must address. The question, of course, is how.

China's economy has succeeded through trial and error, and the lessons of its current stress test should be viewed as part of that process, to be used to drive the next phase of economic reform.

The best way to sustain China's economic transition and prevent a hard landing is to implement looser monetary and credit policies that enable the most productive cities, companies and industries to generate new added value.

Only by addressing the weakening of investment-led growth, bureacratic inefficiencies and worsening pollution, and then shifting to an innovation-based, environmentally sustainable growth model, can China continue to prosper and ultimately achieve high-income status.

China's financial deepening is a market process. But it must be underpinned by a regulatory and policy framework that encourages risk-taking and innovation.