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China's economy is slowing from a high base. A further slowdown, probably substantial, is likely in the second half of the year.
Don't be alarmed. This trend is good for China's economy overall, as the rapid growth seen over the past few years has relied on a bubble economy that's unsustainable. The longer any bubble lasts, the more pain is caused when it fails. So China's choice is to take medicine now rather than suffer through surgery later.
The slowdown doesn't imply sufficient monetary tightening. China's interest rate is far too low against the average inflation rate expected over the next five years. Neither is the slowdown likely to lead to a hard landing. Exports, consumption and infrastructure are likely to continue growing. China's luxury will be the ability to pop a property bubble without a recession because the dollar is weak.
Growth is likely to trend down to 5 percent by 2020 from 10 percent now. This reality shouldn't be viewed with alarm: Five percent is very good for high-quality growth.
China doesn't need the kind of rapid growth it's seen in the past. The employment problem has been largely resolved. So the aim of economic growth now should shift to quality of life. A properly configured system with 5 percent growth can deliver very good improvements in the quality of life.
Besides China, even after an economic slowdown, may still surpass the United States to become the world's largest economy between 2020 and 2022. Based on 5 percent inflation, its growth trajectory is still toward tripling nominal GDP by 2020 to US$ 18 trillion, which would be about equal to America's.
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