China is slowing down. After growing by more than 10 per cent a year for more than a decade, its economy is decelerating. Dreams of double-digit growth are over, as premier Wen Jiabao admitted last week to the Chinese leadership. Many analysts have therefore concluded that China needs monetary easing. They are wrong.

There was some good news amid the Beijing gloom. On Friday we learnt that consumer price inflation had dropped to 3.2 per cent in February from 4.5 per cent the previous month.

Other data releases were, however, weaker than expected. Industrial output growth was sluggish. Retail sales growth had dropped sharply. This is important: because China must urgently rebalance its economy away from investment and towards consumption, any weakness in consumption growth is a bad sign.