China's economy may be the second largest in the world. But the Chinese economy, as financial markets see it, can still change direction with dizzying speed.

A few weeks ago, many commentators seemed to believe that the People's Bank of China, the country's central bank, was reacting too slowly to signs of the economy overheating. Now, after a run of weaker-than-expected data, many are worried that the pace of growth is already in rapid decline.

Certainly, there has been a shift since the start of the year. The push that the government's stimulus package gave to industry has subsided. Similarly, as incentives for consumers began to be withdrawn at the end of last year, the momentum of household spending started to slide. On one closely-watched measure, household spending is now growing at the slowest rate in nearly seven years.

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But some perspective is needed. The evidence shows that economic activity has been slowing gradually, not falling off a cliff. If circumstances remain as they are today, China's economy will still grow by 8 to 9 percent this year and next. That may disappoint some, but it is hardly a disaster.

Pessimists point to two risk factors with the potential to turn a benign slowdown into a hard landing. The first is the power shortage which has spread in recent weeks and which some in the power industry are predicting will be the most severe since 2004.

But there are important differences between 2004 and today. Seven years ago, China had simply run out of generating capacity. The lack of power stations was an insurmountable short-term constraint. The number of power stations, however, has increased hugely since then and the industry today has ample spare capacity.

The major issue now is that power producers cannot generate profitably, given high coal prices and capped electricity tariffs, and so have cut electricity supply. As a result, the government has choices if power shortages threaten to cause macroeconomic pain. It could offer subsidies to power producers to cover their losses. It could allow electricity tariffs to rise. The second of these may be unpalatable today because of inflation concerns. But perhaps that won't be the case for long. It looks increasingly likely that inflation will decline through the second half of this year.

In any case, power shortages have been reported to a greater or lesser extent in most years without causing widespread disruption. Many enterprises are able to fall back on their own diesel generators to keep operations running. Back in 2004, the economy sailed through power interruptions and still managed to notch up double-digit GDP growth.