What’s going on in China? Signs of economic deceleration are plenty. Real GDP growth is down from 12.1 percent in first quarter 2010 to 7.6 percent in second quarter 2012, the official PMI was in the contraction zone (below 50) in August and September, and the balance of payments turned negative in the second quarter for the first time since 1998 (see “NBS PMI versus Real GDP Growth in China”, page 24).

Retail sales growth slowed to 13.2 percent year-over-year in September compared with 18.1 percent year-over-year in January 2012, consumer confidence is at historically low levels, and the Shanghai stock market was at four-year lows (down close to 70 percent from its peak in October 2007) — all consistently pointing at a continuing macroeconomic slowdown, although there were some positive signs on a month-on-month basis in September.

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