Over the last year or so, business news in China has been overshadowed by the concerted policy effort to achieve a ¡°soft landing?for the country¡¯s surging economy. Due to a complex mixture of political and economic factors, the now typical national growth rate ?nudging (and in dynamic regions comfortably exceeding) 10 per cent ?has become, from certain perspectives, almost an object of terror. Is Chinese economic growth escaping the grip of policy-makers, requiring ever tighter ¡°macroeconomic controls?to lower it to a less disturbing level ?perhaps one conforming to a growth rate of approximately 7 per cent?

With the growth figure for the last quarter of 2004 posted at 9.5 per cent (by The Economist magazine), the ¡°soft landing?constituency would seem to have a continuing problem, although government comments still sound relaxed (attributing much of the resilient vibrancy to sectors ?especially agriculture ?where strong growth is welcomed). So it might be worth asking: Why should tough macroeconomic measures designed to trim the Chinese growth rate be considered desirable in the first place?

Setting aside the misconceived antigrowth attitudes of extreme environmentalists and other romantic conservatives, the usual reason to fear strong growth is fear of accelerating inflation. While some worrying inflationary signals were emerging early in 2004, by the end of the year the rise in Chinese consumer prices had fallen back below 2.5 per cent. Evidently, sustaining high growth has proven compatible with monetary discipline and relative price stability. China¡¯s huge pool of migrant and displaced workers, combined with rapidly improving skill levels and labour market reforms, ensure that overall wage pressures remain moderate.

Although rising commodity (raw materials) prices add an inflationary factor to the world economy, such price signals are necessary to promote the elevated investment in exploration and extraction activities required to growing demand and should be greeted as functional market adjustments. Rising raw material prices are an unavoidable consequence of rapid industrial expansion, but their effect is to encourage conservation efforts and energy efficiency, stimulating improvements in production processes.

Two genuinely serious issues are motivating calls for lower growth, one primarily political and the other microeconomic. Politically, increasing income imbalances between social groups and regions are leading to calls for a change in economic direction, while microeconomically the misallocation of credit due to the distorting influence of China¡¯s State sector is simultaneously starving nimble entrepreneurs of the resources needed for healthy expansion while adding to the immense stresses on the country¡¯s financial system. The answer to both of these problems is continued economic reform, courageous industrial restructuring, de-politicization of credit, more sympathetic policies for small businesses and incremental liberalization of residence laws to allow population flows to better match supply and demand for labour. In other words, further microeconomic reforms are required to shift growth in the direction of a modern market economy, providing new employment opportunities in dynamic competitive businesses.

In this context, macroeconomic measures such as elevated interest rates are blunt and even essentially inappropriate instruments. China can definitely improve the ¡°quality?of its economic growth by intensifying the broad trend of titanic transformation underway for the last 25 years. There is no convincing reason to believe that slowing or impeding these developments would play a productive role in solving the country¡¯s problems. The opposite is far more likely to be the case.