Rating agencies do not appear too impressed by the optimism.

For an economy used to growing at double-digit rates, the last several quarters have been unusual for China.

From a high of 10.3% in the second quarter (ending June) of 2010, GDP growth steadily declined by almost three percentage points to 7.4% in the third quarter (ending August) of 2012. Such a consistent decline in China?s GDP growth is a rare event.

During the last quarter of 2012, growth revived to 7.9%. The revival ended a period of growth slowdown that lasted for seven successive quarters. The last quarter of 2012 also spared the blushes for the Chinese economy by helping it to achieve an annual GDP growth of 7.8%. This was, as it is, the lowest annual growth rate for the Chinese economy since 1999 and the lowest in the new millennium. Had the last quarter not shown a marginal turnaround, the annual GDP growth for 2012 could have been even lower.

The first quarter of 2013 has again seen a relatively low GDP growth of 7.7%. The quarterly growth rate assumes some significance since it is the first such estimate released after a new leadership assumed office in China. The growth is still higher than the 7.5% annual rate of GDP growth fixed for 2013. What is worrying the policymakers is whether the following quarters would witness a secular decline in GDP growth and push the actual growth for the year below the target of 7.5%. The fears are not entirely unfounded given that the last year actually ended with a growth rate that was lower than the target of 8%.

Some Chinese experts are maintaining a brave front. For them, the latest growth numbers signal the beginning of a new round of structural expansion. The optimism stems from both the demand side and the supply side. On the demand side, the share of consumption in GDP growth is steadily increasing. On the supply side, the contribution of services to GDP growth is exceeding that of secondary industry.

The optimistic experts are also pointing to the 11-month high level of the PMI (Purchasing Managers? Index) for manufacturing industries, the quarter-over-previous quarter higher growth in hi-tech industry output, the 13.4% year-on-year growth in foreign trade for the first quarter of 2013 and the 3 million additional jobs created in the first quarter, as reported by the ministry of human resources and social security. All these, according to some, indicate a new phase of expansion in the Chinese economy driven by domestic consumption as opposed to exports.

Is this correct?

One swallow does not account for a full summer. Similarly, one quarter is hardly enough for reflecting the full picture. It would require at least another couple of quarters? data to form opinions about the quality of the latest trajectory of Chinese growth. The optimistic view is that China?s current phase of low-growth (by Chinese standards) marks a gradual reorientation of manufacturing industries towards domestic consumption. If this is indeed what is happening, and if the figures released by the ministry of human resources are correct, then the shift is a virtuous process and is creating local jobs.

What is a bit of a misfit in this story is the increase in foreign trade and the simultaneous increase in hi-tech industry output. Given that China is the world?s largest exporter of hi-tech items, hi-tech output is unlikely to increase unless there is a pick up in overseas demand. A positive response of hi-tech industry to export demand explains increase in trade, which would have been contributed to by electronic imports as well. China runs a high deficit in electronics trade with its neighbours, which is due to its importing semi-finished electronics parts and components that are assembled in the mainland and exported as hi-tech items to the rest of the world. An increase in hi-tech production driven by exports also explains the new jobs.

The foreign trade and hi-tech value added story points out that exports are still critical for China?s GDP growth prospects. Given so, the complex external economic circumstances, are still not robust enough for giving a sustainable push to exports. Thus, GDP growth over the next quarters might not rise significantly above the targeted rate of 7.5%.

It is interesting to note that the optimistic version of China?s current economic performance hardly refers to quantity of GDP growth. The vision focuses on the structural pattern of the growth, not its rate. This marks an interesting departure in a country, which for several years has been focused heavily on the rate of GDP growth.

The key question though is whether the optimism regarding the structural change reflects the reality; or is it an effort to divert attention from the depressed indicators. International rating agencies do not appear too impressed by the optimism given that Moody?s has just lowered its rating of Chinese government bond to stable from positive. Only time will tell whether the Moody?s knows more about the Chinese economy than its own experts.

The author is a senior research fellow at the Institute of South Asian Studies in the National University of Singapore. He can be reached at isasap@nus.edu.sg. Views are personal