Why China economy could dodge a hard landing

GDP growth likely to hit upper half of 7.5-8.5% forecast range.

According to Moody's Investors Service, China's economy is recovering and a hard landing is becoming more and more an unlikely and distant possibility.

In addition, while Moody's considers the rebound in growth as positive, it can also -- to the extent that it depends on an ample availability of financial credit and if it is left unchecked -- exert credit pressures over time, perhaps offsetting the initial advantages for the economy.

At the same time, the Mainland's new leadership looks committed to financial-sector, fiscal and structural reforms, and the orderly transition to the country's fifth generation of political leaders has reduced uncertainty for investors.

Here's more from Moody's:

Moody's conclusion of the presence of a recovery is supported by forward-looking indicators, such as the purchasing managers' index, which point towards ongoing near-term economic expansion.

In addition, early signs of a rebalancing in the economy represent another positive, as consumption contributed slightly more than investment to overall GDP growth in 2012. Stabilization in the global economy has boosted China's export performance and supports the country's growth rebound.

Recent data releases also point to a rebound in economic activity and suggest real GDP growth should climb to the upper half of the 7.5% to 8.5% range Moody's forecasts for 2013, up from 7.8% in 2012.

The favorable growth outlook is supported by policy easing and credit extension, particularly by the non-banking sectors, and should continue in 2014.

Given the evolving environment, Moody's believes that China's new political leadership faces a new challenge in modulating the rapid rise in aggregate financing to ensure long-term macro-economic and financial system stability.

To that end, the authorities appear -- as recently indicated by the recent long-term income distribution stragegy outlined by the State Council -- committed to furthering financial-sector, fiscal, and structural reforms.

But the pace at which such reforms can be achieved will be crucial for determining whether a rebalancing of the economy away from its heavy reliance on investment, and increasingly on leverage, is successful.