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 makers. The Chinese economy has successfully completed a shift from a planned economy to a market-oriented economy. Over the past 30 years,the economy expanded to the point where it ranked second in the world in terms of size. Yet its large size does not mean it has achieved high-quality growth. China needs to shift from being large to being strong. There are mainly three steps in this process. The first step is to grow beyond the constraints of an economy of scarcity. That is followed by developing volume moving from small to large. The last step is to reach high-quality growth,in other words,establishing a new pattern of economic development. Once China reaches this objective,it will be able to achieve its goal of modernization.

In the current economic circumstances,investors need to be patient and thoughtful. China has vast economic potential but in order to take advantage of the available opportunities they will need to keep their eye on where we are in the economic cycle. There will also be a need to focus on where we are in the process of economic restructuring. Problems along the way are unavoidable.