The release last week of softer than expected Chinese growth data triggered a fresh bout of speculation that the country’s economy could be heading for a “hard landing”. But should investors worry?

David Shairp at JPMorgan Asset Management says that while there are signs that China is heading for a soft landing, it is too soon to sound the all-clear.

“The Achilles heel of this economy – ironically – is the trade sector,” he says. “For an economy that has developed strongly over the past three decades, thanks to export-led industrialisation, the main risk to a soft landing now lies in a sharper export slowdown. There are some tentative signs that demand is recovering, with the PMI orders data ticking up, declines in inventories of raw materials and bank credit improving.

“But while it may well be that China’s economy is bottoming out, the vagaries of post-lunar new year data mean it will be some time before the growth outlook is clarified. The most likely outcome is a ‘soft’ landing but the risk of a ‘harder’ landing remains significant. Indeed, unless the authorities ease policy further, a more unpleasant outcome could occur.”

Nikolaus Keis, economist at UniCredit, agrees that the GDP data emphasise the necessity for further policy action by the Chinese authorities to boost domestic demand.

“GDP growth at about 8 per cent is generally thought to be the threshold at which enough job creation for new entrants into China’s labour market can be assured,” he says. “We expect the reserve requirement rate for banks to be lowered by an additional 150-200 basis points over the coming months. A cut in key interest rates is also an option, as are further selective fiscal policy measures – although definitely not another huge stimulus programme like that rolled out in mid-2009.

“Continued or intensified policy accommodation is the most important factor why our money is still on a “soft-landing scenario”. It is combined with our expectation that the drag of net exports on GDP growth should abate, given signs of stabilisation and subsequent recovery of the global economy, namely the US, and the defusing of the debt crisis in Europe.”

Carl Weinberg, chief economist at High Frequency Economics, is even more bullish on the outlook for consumption. “Apparently the windfall from falling food prices in China did not pass through fast enough for households to act on it by the end of the first quarter – so consumer spending did not rise over the period,” he says.

“But this pick-up in spending is inevitable, although it may take longer to materialise than we had initially expected. People need time to realise that they have more money left over after they have eaten.

“Slowing the rate of food price increases is the most potent economic stimulus for this huge nation, where 1.3bn people spend 35-45 per cent of their earnings on food. Just as petrol price rises crowd out discretionary spending in New York and London, food price surges squash spending in China. Look for consumer demand to accelerate soon, boosting second-quarter GDP growth.”