FORTUNE -- The Chinese economy hasn't fallen from the tightrope yet.
Markets in Asia rose Wednesday following the release of data showing that the growth of the Chinese economy slowed in the first quarter of 2014 to an annual rate of 7.4% from 7.7% the previous quarter. Though the first quarter saw the slowest growth for the Chinese economy in a year-and-a-half, markets were pleased with the way in which it was slowing -- with increases in retail sales signaling growth in domestic consumption and a slight decline in the rate of fixed asset investment growth, which show the Chinese turning away from what China bears see as a dependence on debt-fueled infrastructure projects.
But these statistics don't even begin to tell the story of how radically the Chinese economy continues to evolve. Millions of people per month continue to emigrate from China's farms to urban areas in search of work in the country's manufacturing sector, while the number of migrant workers in China is greater than the size of the entire American labor force. Maintaining an export sector that can supply jobs for all these people is priority No. 1 for China, lest a lack of economic progress leads to political instability.
And while data released Wednesday suggest that China is growing quickly enough while managing to slowly rebalance its economy, there are still plenty of reasons for critics to doubt they can continue to pull it off. Here are three:
1. Economic history suggests a seamless ascent isn't likely.
Be it the United States in the 1890s or Japan in the 1990s, it's common for economies to experience some sort of financial crisis as they make a transition from emergent to developed. Exceptions to this rule include Singapore and South Korea -- both of these "Asian Tigers" were able to ascend in status without lasting political or economic crises. Indeed, South Korea's transition from authoritarianism to democracy is sometimes cited as a model for those hopeful that democratic reforms will come to China. But even these economies were hit hard by the Asian financial crisis of the 1990s, and neither country is anywhere near as large or diverse as China.
2. The Chinese central government isn't all-powerful.
As former banker and author Satyajit Das pointed out recently, much of the case for expecting a so-called hard landing is centered around the way the central government interacts with powerful local governments in China. Writes Das,
An ancient Chinese proverb -- shan gāo, huángdì yuǎn -- states "The mountains are high and the emperor is far away." The saying implies that Beijing's control over its regions is historically weak, with local autonomy and little loyalty, meaning that central authorities have limited influence over local affairs.
Despite the central government's efforts to curb shadow bank lending to support big, economically questionable, politically motivated local infrastructure projects, there's plenty of evidence that these and other dodgy investments continue to be funded, threatening the stability of the system. A JPMorgan report from last year estimated that the size of the shadow banking sector doubled between 2010 and 2012 to $6 trillion. Even with recent efforts to rein in unregulated lending, much of the worst could already have been done.
3. Even without a bubble burst, wasteful spending could be a serious drag on growth.
In late January, a Chinese investment company was bailed out by the government after a coal company it was funding was forced to miss a debt payment. The bailout was arranged to calm fears that this particular fund company going belly up would spark panic in the rest of the shadow banking sector. The incident shows that the Chinese government is willing to go to great lengths to prevent a financial crisis, but Beijing can't do anything to reverse bad decisions made by shadow banks. Even if China can avoid a bursting of a debt bubble, its economy will still have to struggle under the weight of economically unproductive projects.
That figure is smaller than what similar studies have found. There's also been a big jump in the shadow banking system, which, if you're worried about large banks, is good news.
FORTUNE -- The Federal Reserve finally got around to stating the obvious.
On Tuesday, the New York Fed, through a series of research papers, said the nation's largest banks borrow more cheaply, and take on more risks, than smaller banks and MOREStephen Gandel, senior editor - Mar 26, 2014 10:56 AM ET
China's shadow banking complex is worrisome. But it compares favorably to the most recent U.S. credit boom in one regard.Scott Cendrowski, writer - Jan 30, 2014 1:00 PM ET
The prospect of the first major default connected with the Chinese shadow banking system sent shock waves through the financial markets of emerging economies. Expect more close calls to come.Jan 29, 2014 11:47 AM ET
To get out of quantitive easing, the Fed is considering Wall Street engineering that may wind up boosting the shadow banking system.
FORTUNE -- Ben Bernanke may have to pump up the shadow banking system in order to stop manipulating the bond market. At least that's how some see it.
For months, there has been talk inside and outside the Federal Reserve that the U.S. central bank might have to use an MOREStephen Gandel, senior editor - Sep 25, 2013 10:46 AM ET
The idea that the recent banking squeeze was deliberately engineered by the People's Bank to crack down on the shadow banking system makes little political sense.Jun 27, 2013 5:00 AM ET
Slowing growth of the world's second-largest economy might put it on the right path.
FORTUNE – China's cash shortage has roiled markets over the past few weeks, as investors fear a liquidity squeeze across the nation's banks could further hurt growth in the world's second-largest economy.
While that might likely happen, the credit crunch is actually a good thing for China and the rest of the world.
China's banking system is opaque, if MORENin-Hai Tseng, Writer - Jun 26, 2013 10:57 AM ET
The best way for China to tame its out-of-control shadow banking system is by ramping up its monetary printing press, not turning it off.
By Cyrus Sanati
FORTUNE -- China's over-leveraged banks may be the least of the nation's economic problems at this point. What has traders from Hong Kong to Wall Street truly worried is the state of the nation's so-called shadow banking system, where the government has little, if MOREJun 26, 2013 5:00 AM ET
I will be blogging the back and forth at the Financial Crisis Inquiry Commission today. Five former Bear Stearns execs including ex-CEO Jimmy Cayne will testify in panels starting this morning and running into the early afternoon.
Then, four regulators including ex-Securities and Exchange Commission chief Chris Cox will testfiy in the afternoon. The lineup and prepared testimony are here.
10:12 Bear Stearns and the kindness of strangers
Was Bear Stearns brought down by MOREColin Barr - May 5, 2010 9:23 AM ET
|GM's recalled Cobalt was a failure from the start|
|Michaels hack hit 3 million|
|Why you should pay off your car loan ASAP|
|Walmart offers cheaper money wire service|
|Americans have fallen in love with real estate once again|