Are fears about a looming slow-down in the Chinese economy about to overshadow worries about rising inflation?

That’s certainly the view of Jim O’Neill, the chairman of Goldman Sachs Asset Management, who believes that “the Chinese economy is probably slowing down more than people realise”.

According to a report in the Economics Times, O’Neill is predicting that China’s economic growth is likely to slow to 8% in the second half of the year, but it could occur as early as the second quarter.

A slowdown in economic activity, he added, “means some time in the second half of this year, Chinese inflation will not be a problem, and will come back down to around 4%”. At that point, he said, the Chinese central bank, the People’s Bank of China, would be able to stop tightening monetary policy.

China’s industrial output growth eased much more than expected in April, causing some analysts to worry that a slowdown in the world’s second-biggest economy is already under way. Other symptoms of slowing growth include weaker exports, a slump in residential property sales, and slowing car sales.

“It’s not surprising at all that commodities prices are coming under pressure,” O’Neill said. “The surprise is that they rose so much earlier in the year.”

But O’Neill is not the only one warning the Chinese economy is about to slow.

Earlier this week, Wang Jian, a researcher with China’s top planning agency, the National Development and Reform Commission, predicted the Chinese central bank may soon move to cut interest rates in an effort to boost economic activity.

“The central bank will be very cautious about raising interest rates. In fact, I believe it may stop raising interest rates but cut interest rates in the second half of this year,” Wang told Reuters in an interview.

Wang said that fixed-asset investment, which has been powering China’s economic growth, would soon run out of steam, because spending on new projects had fallen.

Faced with fewer investment projects, weak consumer demand and unstable exports, he said, Beijing may be forced to change tack on economic policy. The question, he said, is “whether China should continue its anti-inflation campaign while the growth momentum is waning”.

China’s central bank has lifted interest rates four times since last October in an effort to combat inflation. Yesterday, China’s central bank announced that banks would be required to hold a higher level of their deposits in reserve, the eighth such increase since November.

The 0.5 percentage point increase in the reserve requirement ratio came after figures released earlier this week showed that China’s inflation rate eased slightly to 5.3% in April. Still, the figures showed that consumers are still confronted with soaring food prices, which rose 11.5% in the month.

But Wang argued that raising interest rates had a limited impact on tackling China’s inflation, because prices were climbing due to structural reasons, such as rising labour costs. And, he said, increases in the banks’ reserve requirements were more a tool for mopping up excess liquidity in the economy than a form of monetary tightening.

*This first appeared on Business Spectator.