By Richard Turnill, global chief investment strategist at BlackRock.

Richard Turnill, BlackRock global chief investment strategist.

China’s growth is set to cool in 2018 after a surprisingly strong year, and economic risks are rising. Yet the key party congress this week will likely serve as a prelude for deeper reforms. We see still-solid growth in China underpinning EM assets.

China’s growth acceleration helped foster this year’s EM recovery, boosting EM earnings growth and equity outperformance. China’s recovery also coincided with a near perfect set-up for EM assets: a weaker US dollar, falling bond yields, rising commodity prices and a more synchronized global expansion.

Our BlackRock Growth GPS for China still points to steady growth in 2017. Sustained, above-trend global growth also helps underpin China’s key exports. China’s growth may come off slightly in 2018, but we expect growth at levels that should still be positive for EMs and risk assets globally.

The road ahead for China and EMs may be bumpier than this year. Chinese President Xi Jinping is widely expected to shake up the ruling Politburo and bring in more allies at the twice-a-decade Communist Party congress that sees a reshuffling of most officials. This will give Xi greater sway to chart the country’s course over the five years of his second term. He is likely to speed up work on his key initiatives: further cleaning up bloated state-owned enterprises and delicately cutting down on the country’s reliance on debt to boost growth.

Source: BlackRock.

Supply-side reforms played a role in this year’s surprise Chinese economic rebound that boosted commodity prices and industrial profits, lifting growth back near a 7% annual pace. Some of that one-time boost has faded. Yet supply-side reforms, coupled with tighter environmental regulations, are spreading to a wider range of industries plagued by overcapacity.

The risk to our thesis is a sharper slowdown once the desire to prop up growth and ensure a smooth party congress begins to fade. Bank lending and credit are cooling – the result of a healthy move to crack down on shadow banking and leverage. Trade relations with the U.S. may come under strain, in part due to the tensions with North Korea, and hurt exports. Regulatory moves to take some steam out of the frothy housing market may cause a downturn in construction activity. A rebound in the US dollar could spur renewed capital outflows and put the People’s Bank of China in a tricky spot managing the currency and economy.

This all comes as China attempts to shift its growth mix to one that is more consumer-led and less reliant on infrastructure investment. Our bottom line: We believe China’s growth rate will slip to still-solid and more sustainable levels. That should remain a positive for EM assets and risk assets, even if the sailing is unlikely to be as smooth ahead.