China: Sharp slowdown, or soft landing?

Chinese first quarter GDP data showed a fall in year-on-year growth to 8.1% for the first quarter of the year, compared to 8.9% in the last quarter.

This relatively sharp slowdown in growth will clearly increase concerns about a hard landing in the near-term.

However, many analysts expect that growth will stabilize and recover modestly over the rest of the year as external conditions improve and China's domestic policy is fine-tuned.

Some analysts still forecast annual GDP growth of around 8% for 2012–even though Chinese officials have set a relatively modest annual target of 7.5%. That will be a significant drop from last year's 9.2% annual growth rate.

China's goal is to modulate the speed of growth by tapping on the brake to slow down without hard landing.

In his "state of the nation" speech at the annual session of China's legislature, Premier Wen Jiabao said the goal is slower but "more sustainable and efficient" economic growth.

Premier Wen also set inflation target at 4% and pledged to create nine million new jobs in towns and cities. He spoke of boosting domestic consumption, increasing spending on social services and raising incomes, as well as expanding consumer credit. The shift calls from more domestic consumption instead of relying on investment and exports for economic growth.

"We aim to promote steady and robust economic development, keep prices stable, and guard against financial risks by keeping the total money and credit supply at an appropriate level, and taking a cautious and flexible approach," he said.

But experts say China faces nagging risks, including eurozone's debt crisis, domestic property sector, government debt and growing social tension.

Chinese officials hope to maintain economic stability this year – a crucial year of transition for China’s top leaders as both Premier Wen and President Hu Jintao finish their last year in office.