China, now probably the world's third-largest economy, is grappling with some difficult economic issues.

Indeed, some measures taken by the Chinese government to handle these problems may be significant for the many Irish investors who have invested in cities like Shanghai.

The Chinese government has announced that it is illegal for foreigners to buy any property in China unless they have lived there for at least one year and if so they must buy the property in their own name, a measure aimed at taking steam out of the higher end of the property market in the bigger cities.

The Chinese authorities have also raised interest rates and seem likely to raise them again in the weeks or months ahead.

Their currency, the renminbi, has been allowed to rise at a quicker pace and the central bank has taken a series of technical, but significant, steps to make it harder for banks to lend money.

Also, the central government has announced that it will be sending inspectors to the local provinces and cities to check that the sale of land to developers is legal, and in accordance with government rules - a serious step as it's estimated that upwards of 60 per cent of all land sales in China are illegal.

The consequences for a local official who is found to have broken the rules can be serious. In other countries, such officials might lose their jobs. In China they are likely to go to jail or be executed.

This announcement of inspections is likely to send a chill down the back of any officials contemplating selling state-owned land to a developer.

So what's gone wrong? We have become used to the fast rates of growth that China has produced over several years. But that growth is beginning to cause problems (similar to those seen in Ireland towards the later stages of our own boom). Bottlenecks are beginning to arise and infrastructure can't keep pace.

There are shortages of electricity, the railways are full to capacity, house and apartment prices are soaring in some cities and pollution is a major problem.

Recognising these and other problems, the authorities recently decreed that in future the priority would be not just to maximise economic growth but also to maximise the quality of that growth.

China has continued to grow over the last couple of years, with annual growth of around 8 per cent compared to 3 per cent in the US and a paltry sub-2 per cent in the euro zone.

China's growth has had a huge impact on the rest of the world, most starkly seen in energy and other commodity prices, with some analysts suggesting that China's energy demands have added a staggering 50 per cent to world energy prices.

The Chinese government faces real difficulties in trying to apply the economic brakes. China's enormous trade surplus is generating a great deal of wealth, which acts to offset the actions of the government in trying to slow down the economy. But it would be dangerous to slow down the economy too much. If China's economy were to move into recession, there could be mass unemployment - China needs to find jobs every year for about 20 million people who move to the cities from rural areas - and this could lead to political as well as economic instability.

China has an excellent track record in managing its economy - it survived the 1997 Asian crisis virtually unscathed as well as the world slowdown of 2001 when the dotcom bubble burst.

It therefore certainly deserves the benefit of the doubt that it will manage these difficulties well. Still, the recent overheating of its economy could have implications for Ireland.

Although direct trade with China is small, Ireland exports about 80 per cent of our economic output, and world trade would be one of the first casualties if China were to slow down.

The last time the world economy slowed was in 2001/ 2002, and in those years Irish export growth slowed to 6 per cent and 4 per cent respectively, from growth rates of 16 per cent to 18 per cent in the two years before that.

But in 2001 it was the world's largest economy that moved into recession. This time we are talking about the world's third largest economy.

And a slowing of the Chinese economy does have the benefit of a substantial easing of world energy prices. Nonetheless, events in China will have to be watched closely.

• Eoin Fahy is chief economist at KBC Asset Management. The views expressed are personal and do not necessarily represent the views of KBC Asset Management.