Welcome slowdown in the workshop of the world

Whereas in most Western economies weaker business confidence in the manufacturing sector would be met with alarm, in China the fact that the economy is slowing down will be welcomed as evidence that official efforts to control inflation and restrain a potential bubble economy may now be succeeding.

A crackdown on property speculation is also having at least a superficial impact on real estate values, up in some cities by 36 per cent in a year. Rapid wage growth and an unusual upsurge in workers' militancy, symbolised by the strike at Honda, are also signs of an economy operating at full capacity.

Manufacturing, which has dominated China's export-led growth for a decade, recorded its 15th straight month of expansionary optimism, according to the latest poll. But the Purchasing Managers' Index fell from 55.7 in April to 53.9 in May, somewhat below analysts' expectations.

It is the lowest level in a year, though the reading, at above the "break-even" 50 mark, suggests sustained expansion. Worries about the strength of the global economy have also damaged confidence, which depends heavily on US and European markets. The sovereign debt crisis in the eurozone has had a particularly baleful effect; the Shanghai stock market fell by almost 19 per cent in May.

Underlying fears about the Chinese economy persist. Prime among these are the continuing strains in the relationship with the US.

Although China's record-breaking trade surplus has subsided, US officials such as the Treasury Secretary, Tim Geithner, make little secret of their desire to see the Chinese revalue their currency.

But tightening monetary policy – under way in a modest way in Beijing – would have the effect of further contracting domestic demand. To balance that threat the Chinese Premier, Wen Jiabao said yesterday that his government would maintain the fiscal stimulus to the economy, to boost domestic consumption, appeasing Beijing's many international critics.