China: Recovery Consolidating but Slower Growth Ahead

Rising labor costs, a slowing recovery in the advanced economies, and expected reductions in China’s dependence on external demand will probably slow China’s growth to 7–8 percent in the years ahead. A significant slowdown, as feared for the United States, is unlikely, however. If domestic economic rebalancing—now recognized by top leaders in Beijing as absolutely necessary—accompanies this slowdown, it will be a good thing for China and for the rest of the world.

Overheating Largely Contained

China’s efforts to reduce overheating and control a potentially dangerous housing bubble have been largely successful so far. Although consumer price index (CPI) inflation, driven by food prices, grew in August, producer price inflation fell. In light of a probable decline in food prices later this year, the government’s 3 percent CPI inflation target for 2010 looks achievable.

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