RECENT DATA IN China shows two sets of important changes in what is now one of the most important drivers of growth in the world economy. First, there are indications of a cyclical slowdown, with economic growth showing signs of weakening more than anticipated in the short term. Second, there are structural changes in China that affect its competitive positioning in global markets, thereby affecting the region. The net effect of these changes may well be positive in the long term.

INCREASINGLY MORE CONCERNS are being expressed about the global economy slipping back into recession. The mood of optimism at the beginning of the year has given way to a more sombre awareness of the downside risks to economic growth as fiscal tightening in Europe and Japan looks set to become more ferocious than expected and as China acts decisively to slow its super- charged economy. Since Asia’s economic fortunes are still substantially driven by what happens in the global economy, especially in the US, Europe and Japan, it is not surprising that financial markets have been volatile.

CHINA HAS FLOATED the renminbi, shifting it away from the informal peg to the US dollar in force since mid-2008. The RMB will now move in line with a target defined by a basket of currencies. The key change is not so much a revaluation of the RMB, but a change in the mechanism used to manage the RMB. Several key questions arise: Most importantly, what is the path ahead for the RMB and what are the implications for China, the world economy and Asia?