Cooling economic activity has heightened expectations of more aggressive policy actions from Beijing to counter a worse-than-expected slowdown. Industrial output growth slowed the most in three years in July and new export orders fell, both reflecting the debt crisis in Europe and a sluggish recovery in the United States. Consumer price inflation fell to a 21/2-year low, providing a comfort zone for monetary policy easing. As a result, economists expect another interest-rate cut, following easing in June and last month, and further reductions in the ratio of deposits that banks must hold in reserve to free up more liquidity. Output indicators, including retail sales, slowed across the board compared with July last year. Nonetheless economists still predict GDP growth this year of around 8 per cent, compared with the official target of 7.5 per cent. Politically, however, further easing seems a safe bet, since the country's leaders will want to keep economic growth on track ahead of a national leadership change in the autumn. Pressure is also building for a boost in infrastructure spending, as well as for government to do more to stimulate consumption and cut taxes for the small- and medium-sized enterprises that generate employment opportunities. In fact, Premier Wen Jiabao said last month that sustaining investment was most important at this point. Since then, the People's Bank of China has ordered banks to step up lending to support growth. There are signs this is happening, such as a pick-up in government investment in infrastructure projects and investment by state-owned companies. Unfortunately, state-driven investment does nothing to address the structural imbalance in China's economy between investment and private consumption, which accounts for little more than a third of output. A big increase in such investment to combat the global financial crisis has left the economy burdened with projects of dubious economic value, excess capacity in the state sector and an incipient debt crisis at the local government level. Another round of it, even on a much smaller scale, will only delay much-need financial and structural reforms to an economy overdependent on exports. The relative lull in China's growth is a window of opportunity to tackle these reforms at a time when its comparative cost advantage is declining. During boom times, it is harder to overcome resistance to change from vested interests. As Wen has said, the key to sustainable growth is to boost domestic consumption. This calls for a climate that stimulates innovation and movement up the production value chain, including liberalisation of the banking sector so that private capital can play a greater role. The legacy of the next generation of leaders could be shaped by progress in economic reforms.