Tiananmen Square 25th Anniversary: No Hard Landing for China Economy

The Tiananmen Square protests are remembered chiefly as a spectacular moment of youthful defiance, crushed by the bloody violence unleashed by the state. This may be the legacy of the 6-week protest movement through western eyes but the aftermath marked a significant turning point for China's economy.

The country's leadership pivoted, prioritising economic progress above the political progressivism and embracing radical, neoliberal economic reform. China became the world's workshop and its economy expanded at a stellar rate, growing bigger than everyone else's, bar the United States.

Now, 25 years later and the country's economy stands at another cross roads.

China is slowing down and the question on that's been on the mind of every economist and analyst is whether the landing will be hard or soft?

Hard of Soft Landing?

A 'hard landing' occurs when an economy experiences rapid growth followed by a dramatic downturn, perhaps even a recession, after the government moves to halt inflation.

A 'soft landing' sees a high-growth country easing down steadily toward more normal levels of growth.

The most notable critic, the International Monetary Fund (IMF), reported that China is facing the danger of a hard landing.

IMF chief Christine Lagarde warned of the risk to China and other emerging economies in her Global Policy Agenda report.

She wrote that poor asset quality posed the biggest risk to the country, although the risk of a hard landing was small. She urged China to cover risks in its shadow banking system and to liberalise its financial sector in order to free up credit allocation.

These are fair points but they do not mean that China should necessarily brace for a hard landing. Part of Lagarde's job is to warn the world's leaders of looming economic threats before they bite.

What is strange in China's case is that its leadership has heeded warnings and acted in a bid to avert a hard landing before a crisis is under way.

That is more than can be said for the way US leaders dealt with the domestic sub-prime mortgage disaster, or the manner in which European leaders allowed the Eurozone crisis to unfold.

Under the direction of President Xi Jinping, China's leadership has engaged with cautious economic reform.

Xi is slowly opening up the economy to the foreign investment, engaging with environmental problems, while floating reforms to state-backed enterprises and freeing up bank interest rates over the next few years.

China's growth has slowed in recent years but the slowdown has been gradual and steady. Its economy is actually expected to expand by 7.3% in 2014. The leadership set out a blueprint for economic reforms in December 2013 and has rarely strayed from its own guidelines so far.

Xi's record suggests he will take on the task of managing China's changing economy with caution, making smaller and easier reforms before tackling the more painful measures at a later date.

While this policy may be enough to warrant a soft rap on the knuckles from the IMF, the leadership has stuck to its reformist blueprint and is showing no sign of losing its nerve yet.