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Last year, the global economy was supposed to start returning to normal. Interest rates would begin rising in the United States and the United Kingdom; quantitative easing would deliver increased inflation in Japan; and restored confidence in banks would enable a credit-led recovery in the eurozone. Twelve months later, normality seems as distant as ever — and economic headwinds from China are a major cause.

To spur economic growth and achieve prosperity, China has sought to follow the path forged by Japan, South Korea and Taiwan, but with one key difference: size. With populations of 127 million, 50 million and 23 million, respectively, these model Asian economies could rely on export-led growth to lift them to high-income levels. But the world market is simply not big enough to support high incomes for 1.3 billion Chinese.

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