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How Should China Respond to the Slowdown?

BEIJING – China’s annual GDP growth slowed to 7.6% in the second quarter of 2012, down from 8.1% in the first quarter and the lowest growth rate since the second quarter of 2009. The newly released growth data may have dispelled fears of a hard landing for China, but have nonetheless prompted many to argue that China must stimulate its economy further to guarantee 8% annual growth.

Since early 2010, in order to contain inflation and property bubbles, the Chinese government has tightened monetary policy. As a result, inflation fell in June to 2.2%, a 29-month low, and house prices, for which the National Bureau of Statistics unfortunately has stopped issuing official data, seem to be stabilizing, and may even have fallen, albeit modestly.