<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By William Pesek</p> <p>You know the world has gone mad when 9.1 percent growth disappoints markets. Yet today's news, that China couldn't produce a bigger figure in the third quarter, did just that in Asia today.</p> <p>The disappointment reflects China's status as our only true growth engine as U.S. unemployment rises, Europe unravels and Japan's funk deepens. And now the No. 2 economy and the only sizeable source of dynamism is operating at its slowest pace since 2009. Markets, understandably, are taking it hard.</p> <p>There's good and bad in signs that Chinese growth is moderating. China’s economy has been supported by any number of bubbles for many a year now -- some inflated by ultra-low interest rates from Washington to Tokyo, others by massive domestic spending, and still others by an undervalued currency. It's high time China got a handle on its overheating risks.</p> <p>The bad news: Now the hard part begins. China is making things up as it goes along. Yes, Beijing is the home of the five-year plan, and it often executes it with impressive skill. Yet China must cool its economy without going too far and killing growth. And it must do so without the conventional economic levers that exist elsewhere.</p> <p>Central bank rate hikes don't get traction because China lacks a deep and liquid debt market. China lacks the multiplier effect that makes monetary policy so potent at containing inflation. Beijing has a hard time controlling fiscal policy with regional governments carrying out a truly historic infrastructure arms race, all financed with debt.</p> <p>China's balancing act is unprecedented. It needs to create hundreds of millions of jobs to keep the peace and avoid social instability, while simultaneously turning its export-led economy upside down. China is working to retool things and create a vibrant consumer-led domestic economy. Yet the chaotic global environment may give China less confidence to experiment with change.</p> <p>Chinese inflation has held above 6 percent for four straight months now. That may limit Beijing's stimulus options should 2012 turn out to be a bad year for the global economy.</p> <p>China has beaten the odds and grown strongly since 2008. Whether it can do so again remains an open question. Amid all the uncertainty, though, this much is clear: China is becoming increasingly interesting.</p> <p>(William Pesek is a Bloomberg View columnist.)</p> </body> </html>