After the co-ordinated rate cut in October, the Chinese cut interest rates in a show of solidarity. Now the rest of the world is talking about fiscal stimulus, and China is charging ahead. The State Council has announced a vast fiscal stimulus programme to pull China through the coming grim years. The stimulus, however, is taking the wrong form. Rather than trying to prop up the Chinese economy as it was, this is an opportunity to turn it into the economy China wants – one where consumption at home has more than a cameo role. The government must seize it.

There should be no surprise that China is slowing down. A global slowdown was bound to hit the world's second-largest exporter. The International Monetary Fund now sees Chinese output, which grew by 11.9 per cent in 2007, growing by 9.7 per cent in 2008 and 8.5 per cent in 2009. This sounds strong to western ears, but few countries can absorb 3 percentage point falls in annual growth without problems.

Having cut interest rates three times within the past month, the Chinese State Council has now taken the advice of the IMF and the World Bank, and authorised $586bn of stimulus spending over the next two years. Housing, utilities, disaster relief and transport are expected to be the main beneficiaries.