Optimists or Pessimists : Who is Right about the Chinese Economy?

Market economies are always subject to cyclical movements whereas structural problems are often unique and less predictable. In its current phase of industrialization,China is facing pressure from the need to make structural changes,and that pressure is being felt just as the economy encounters cyclical pressures as well.

Economists generally agree on the interaction of these two forces in China. Where they differ is on how long the effects might be felt. The difference divides the optimists from the pessimists.

When we examine the prospects for dealing with these pressures we can be sure of a few things. There is little disagreement between these camps on the importance of the agricultural sector - which is critical to China's economy and the feeding of the nation's 1.3 billion people. Some 228 million people are still engaged in agriculture in China,and policy makers need to keep this in mind when they grapple with the problems that confront the economy.

At the same time,the financial system is critical. Often likened to the human circulatory system,it sustains the world's second largest economy. Financial risk is therefore something that cannot be ignored.

And as in other economies,employment is another key concern. More than 10 million university graduates collect their degrees and enter the job market each year. The economy needs to create places for them in the labor force just as large numbers of workers move from the farms to the industrial and service sectors.

As we try to resolve structural problems such as overcapacity in key industries and the continued financing of money-losing enterprises,any of the policy choices have wide-ranging effects.

China is aiming for steady and stable growt