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Don't fret China GDP, an 'upturn' is underway

China will have investors on edge on Wednesday with the release of its first quarter growth figures, which are expected to show economic expansion grinding down to a five-year low.

Gross domestic product (GDP) growth is forecast to have slackened to 7.3 percent in the January to March period, according to a Reuters' poll, the slowest annual growth since the first quarter of 2009. This is down from 7.7 percent in the final quarter of 2013.

But don't sweat it, as growth momentum has stabilized and a cyclical pick up in the world's second-largest economy is underway, according to Li Gang Liu, chief economist, Greater China at ANZ.

Read MoreWhy China doesn't have a big bond problem

"GDP is a lagging indicator. The economy has bottomed, and there is a cyclical upturn taking place – the question is how strong it will be," Liu said.

Liu expects growth to pick up to 7.5-7.6 percent in the April-June period.

A pickup in daily electricity output is a key factor reflecting growth stabilization as it suggests that industrial production growth is gaining traction, he said. Electricity output - which is closely correlated to industrial production given it is energy intensive nature - grew 8.4 percent on-year during 1-24 March, up from 5.5 percent in January-February, according to the China's National Development and Reform Commission (NDRC).

In addition, export orders in both official and HSBC manufacturing PMI have picked up in the past two months, pointing to an improving outlook for the advanced economies. In March, HSBC's new export orders sub-index rose to 51.3 in March from 48.5 in February. The 50-point level demarcates growth and contraction.

Read MoreChina March exports tumble 6.6%, worse than expected

John Phillips | CNBC

Cyclical upturn

The economy tends to see a pickup in the second quarter as the number of new construction projects typically accelerates following the National People's Congress in early March and peaks mid-year, according to ANZ.

In line with this trend, Beijing announced a mini-stimulus package earlier this month designed to boost spending on railways and other infrastructure projects.

Read MoreChina stimulus: Is Beijing going back to its old ways?

"The acceleration in fiscal policy implementation will provide some impetus to the economy in the coming quarters," Liu said. "China will continue to maintain a 'proactive' fiscal policy this year, indicating that the government has room to increase investment to counter the economic slowdown."

Prakash Sakpal, strategist for ING Bank also expects the recent fiscal measures to revive GDP growth starting from the second quarter. "[We] reiterate our 7.5 percent forecast for full-year growth.

However, absent an export-led recovery we consider the risk to our forecast skewed to the downside," Sakpal wrote in a note on Monday.

The real concern with China

While much attention is focused on the growth numbers, Bill Adams, senior international economist for PNC Financial Services Group said this isn't the real concern.

Read MoreChina March new bank loans in line, M2 growth slows

"The concern for China is not the rate of growth, still 2x-3x faster than most other large economies, but instead is the uncertainty about financial sector non-performing assets and high local government debts," he said. Voicing a similar view, Victor Shvets, head of Asian strategy at Macquarie Securities, said

"GDP is not a risk event for markets. Whether it's 7.5 percent, [or] 7.3 percent [growth], I don't think it matters."

"The key is: Is China facing a credit crisis? And the answer is no – China is not facing a credit crisis," he said

There have been increasing signs of strain in China's financial system in recent months. Last month, solar components maker Shanghai Chaori Solar Energy Science & Technology, became the first mainland company to default on a domestically-issued bond.

The government has said it is paying "high" attention to risks in the financial sector and would take steps to ensure they do not pose a threat to the wider financial system, providing some comfort to investors.

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