In part, this reflects a welcome policy-induced slowdown from the increasingly unsustainable rates of growth in recent years. With large vulnerabilities building in the housing sector, evidence of overinvestment increasing, and inflation above target, Chinese policy-makers appropriately responded by tightening monetary and macroprudential policies. Less anticipated has been the extent to which weaker external demand, especially from Europe, has weighed on export growth.
More recently, in light of slowing growth and moderating price pressures, the People’s Bank of China has eased monetary policy and the fiscal stance has been relaxed. In both regards, authorities retain considerable additional policy flexibility.