China and the Economic Cycle

China's economy is under pressure from an economic downturn. Market participants are watching anxiously. They want to know how long this downturn might have to be endured and what is the correct path to economic recovery.

A market economy follows market cycles. The U.S roughly completes a cycle over a seven to eight-year period. After each cycle,the balance between supply and demand is adjusted to a new level,and the economy continues its development progression. China is similar in this respect and it is now in the midst of a weaker economic cycle. In the past,economic development followed a linear progression,at times overheating and then cooling excessively. However,with the development of a market-oriented economy and closer ties to the global economy,China has shown greater cyclicality. Moreover,China is not a "risk-free" environment and cannot be seen as the global economy's only engine.

Unlike other economies,China is not only going through a cyclical downturn,it is undergoing a major restructuring. This vastly increases the degree of difficulty for its policy make