Structural reforms remain important

The global economic slowdown has created a volatile environment for policymakers, and exacerbated China's domestic challenges. The impact of the slowdown is reflected in the economic figures for the first half of 2012 that were published last week. The data confirmed lackluster trade flows, decelerating investment, and declining quarterly GDP growth.

Responding promptly to the challenges the government has taken an expansionary policy stance, and in late May it announced a set of stimulus measures combining short-term actions with longer term economic restructuring.

These measures will underpin growth in the second half of 2012. They include cuts and more flexibility in benchmark interest rates; increased public spending in education and health; targeted subsidies to boost consumption; and accelerated infrastructure investment. However, the economy remains vulnerable to sluggish growth in major world economies.