Mr Wen talked of a prudent fiscal policy and proactive monetary policy. The message was not to worry about this slowdown getting out of hand, as the authorities will ease policy to prevent growth weakening too much.

Since May the authorities have, indeed, eased policy. The question is how much of a slowdown has there been? Until two months ago, there was a clear divide: exporters were complaining, hit by weak global demand; in contrast, firms selling into China's domestic market were in good shape. More recently, particularly as the euro crisis escalated, the weakness from exporters spread, affecting manufacturing and weighing on domestic spending, as well. People in China have become less confident.

Yet this is not like the end of 2008, when 30 million migrant workers lost their jobs - or, at least not yet. About 11 million new jobs have been created this year.

As the world's second-biggest economy, China now has a huge global impact. After the global recession, the world economy grew strongly by 4.4 per cent in 2010, helped by policy stimulus in the West and by a rebound in China and other emerging economies. Then, in 2011, global growth slowed to 3.1 per cent as policy stimulus in the West wore off and China raised interest rates to curb inflation. Last December, I forecast world growth of only 2.2 per cent for this year because of recession in Europe and the UK, only steady growth in the US and a slowdown in China. Despite likely weakness in coming months, global growth should pick up next year to around 3.1 per cent and China will play a key role if it does.

While the pace and scale of change in China is huge, so, too, is its catch-up potential. For instance, China's income per head is only 18 per cent of that in the United States.

David Fuller's view It would be a big mistake, in my opinion, to underestimate the world's fastest growing economy for the last 30 years. Nevertheless, there is an uncertainty and edginess to China's imminent decennial handover of power to the next generation of leaders.

This is evident in China's serially underperforming stock market (weekly & daily), despite some of its best valuations (PER & Yield) for many years. The edginess is also reflected by China's increasing bellicosity towards its regional neighbours regarding territorial boundaries in the South and East China Seas, not least towards its old enemy, Japan.


Xenophobic distractions such as the anti-Japanese demonstrations across China could not occur in this closely policed country without official encouragement. Was this to distract people from the ineptly handled 'disappearance' of Vice President and Presidential heir apparent Xi Jinping for two weeks? Clearly, something important has happened and rumours are rife, as you can see from today's report in Eurasia Review. Here are the last two paragraphs:


On the other hand, the speculations that the 18th Party Congress may not take place in October 2012 have also reached its peak. As per the normal practice, the Chinese Communist Party (CCP) advertises the dates for the Congress at least a month before it starts. With hardly a month to go for the October Congress, there has not been any such announcement so far. While the leadership transition appears to be a well-orchestrated move, and a scripted finale of the act that is often practiced behind close doors, experts are aware of the intense bargaining that goes on behind closed doors until the day of the Congress. This bargaining is not just about the membership of the future PBSC, but also about the future course of the country's political economy that is reflected in the Party Secretary's report to the Congress. Bo Xilai's ouster has ignited a serious debate, hitherto unseen and unheard, inside China on the course of politics, economy and ideology in the country- especially the politics of the ideology, which drives the Chinese statecraft. It is highly likely that the delay in announcing the final dates of the Congress is due to the ongoing internal churning inside the CCP's headquarters.

The 18th Party Congress is unique in the sense that this will be the first time that the power transition will take place in the absence of a paramount leader. The 15th and 16th Congresses, when the last of the generational power transitions took place, were largely scripted by Deng Xiaoping. This time round, China will surely miss the command position of a paramount leader as it scrambles to select its future political leaders. Consensus is a different ball game without a clear authority at the top. Add to it the suspense over the sudden and silent disappearance of the next generation leader of the Party, whose image as a national leader was being carefully cultivated over the last couple of years, and we find an enthralling political drama slowly unfolding in Beijing that resembles the climax of an action-packed thriller, even if Xi were to reappear very soon, as it is being reported in the media.

My guess is that China's stock market will resume its recovery, suggested by that large upward dynamic seen on September 7th when an extra fiscal spending stimulus was announced, once the political dust has settled. This would be important as it should help to underpin the global stock market rally, not to mention the recent recovery in global mining shares.