The population of China bears seems to keep growing. Thealready large colony of doomsayers can point to any number of legitimate troublesfacing China, from slowing exports growth to an aging population,from real estate excesses to a moribund consumer sector. They usethis long list to conclude that the Chinese economy could easilyface a cyclical stall, what some term a “hard landing.” But thereis a problem with their approach. Many of the issues to which thebears point will take years to have an effect. Other, moreimmediate problems are already dissipating. For all of China's veryreal difficulties, the country will likely experience a much softerlanding than the bearsfear.

Recent disappointing economic indicators have three roots, allcyclical in nature: (1) slow expansion in the United States andrecession in Europe, (2) the legacy of China's past monetaryrestraint, and (3) a drop in residential real estate prices alongwith building activity. These are the key considerations for Chinaover the next 12 to 18 months. Its very considerable demographicissues and need to increase the consumer's place in the economicmix, critical considerations though they are, will play out over amuch longer time horizon and mean almost nothing for the outlook in2012-2013.

Because exports are a primary engine of China's growth, it couldnot help but suffer from the subpar American recovery and outrightrecession in Europe. The European Union is China's largest exportmarket, and the United States its second largest. So far this year,China's exports have grown at an annualized rate just barely above9%, well down from the average expansion in the high-teens in 2010and 2011. Actually, given what is happening in Europe and the U.S.,the recent export performance shows remarkable resilience. Still,the slowdown has affected more general economic indicators, such asindustrial production, electricity generation and new purchaseorders from Chinese industry.