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Economists calculate that China has overtaken Japan this year as the world's second-largest economy, and it's an economy filled with superlatives: the world's biggest consumer of energy, the biggest car market, even the biggest producer of beer.

But China's economy is slowing down, at least by its own red-hot standards. NPR's Louisa Lim reports on what that means for ordinary Chinese, and for the rest of the world.

LOUISA LIM: The dog days of summer are especially sluggish at this real estate agency. It's in Tiantongyuan, a massive suburb of Beijing, once famous for its low-cost housing. But today, there are no takers. Real estate transactions dropped 70 percent, after the government moved to slow the market in April.

Prices have dropped by about a quarter in this part of town. Still, nobody's buying, amid warnings the slump could be just beginning. In realtor Meng Jianguo's company, which has 30 employees, the mood is quiet desperation.

Mr. MENG JIANGUO (Realtor): (Through translator) From the end of April till now, this whole shop has only sold two apartments. You see, we're definitely losing money. Lots of other shops have closed down on this street.

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LIM: Out on the street, it's not just vacant shops people are worrying about. China's electricity company recently estimated there were enough vacant apartments to house 200 million people. The government denied these figures, but the phenomenon of ghost apartments and even ghost cities does exist, due to real estate speculation.

The crackdown on that led to a slowdown in construction, and Wang Tao from UBS says that's had a knock-on effect on China's trade partners.

Dr. WANG TAO (Head, Economic Research, UBS): When China slows, then its imports from other countries - to a lesser extent from the U.S. - were also slow. The slowdown of China's growth, the biggest impact of that is going to be on commodity exporters - so the Australias and Brazils and so on.

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Unidentified Woman #1: Seng Information Center forecasts economic growth of 9.5 percent this year.

LIM: China's massive stimulus package two years ago was accompanied by a record lending spree of $1.4 trillion. And now stimulus incentives are being wound back. Once-favored sectors are coming back to Earth with a bump.

Unidentified Woman #2: (Foreign language spoken)

LIM: In this dealership selling Chinese-made Chery cars, the shop's four employees are playing cards. That's how slow it is. Growth in the auto market is slowing sharply.

Shop manager Luo Cixi says sales have halved since last year.

Ms. LUO CIXI (Manager, Chery Cars Dealership): (Through translator) This year, profits are down a long way, since there are fewer customers. Last year, cars with small engines sold very well after the sales tax was halved. But after the tax was re-imposed this year, it's been bad.

LIM: All of this suggests Chinese consumers aren't really stepping up to the plate. Domestic consumption is at 35 percent of GDP, the lowest of any major economy. But minimum wages have gone up across China, mostly by more than 20 percent. That will raise prices for manufacturers.

But economists are not necessarily concerned.

Professor PATRICK CHOVANEC (School of Economics and Management, Tsinghua University): I think most economists, when they look at the slowdown that's taken place over the last couple of months, they're actually more relieved than concerned. China, in the first quarter, was growing at nearly a 12 percent growth rate, and for most economies that sets off all kinds of red flags about overheating and inflation.

LIM: Patrick Chovanec, from Tsinghua University, says China must now learn lessons from Japan's experience.

Prof. CHOVANEC: Japan hit this point in the 1980s, where it became the second-largest economy in the world and the largest exporter in the world. And because it didn't adapt to the fact that it had outgrown its export-driven growth model, it lost its way. If China wants to continue to grow, it will have to transition from being an export-driven economy to an economy that drives itself.

LIM: That would be in China's long-term interests, but cause short-term pain. The same is true if China frees up its currency, which it's accused of keeping artificially cheap. China's made symbolic moves to allow it to trade more freely, but it's been reluctant to let it rise too far for fear of a global double-dip recession. It's not yet clear if China's policymakers have the stomach for that much short-term pain.

Louisa Lim, NPR News, Beijing.

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