NEW YORK (TheStreet) -- To evaluate an expected slowdown in China's economic growth on the stock market this year, put the calculator aside. Look harder at what's really going on.

The country forecasts economic growth of 7.5% in 2012, slower than last year's 9.2%. China's economy has grown 9% to 10% a year over the past decade, so such a slowdown has alarmed investors.

Meanwhile, the Purchasing Managers Index (PMI) is expected to have fallen in May from April to a score just above 50. A number below 50 would mean China's manufacturing industry, the cornerstone of its economy, shrank.

Close the ledger and go out into the street. Urban Chinese people worried about their economy usually bellyache about higher prices for seafood dinners or newly built condos. Since income is also rising, businesses that sell to the Chinese needn't worry about a sudden customer exodus. Stimulating consumption is a high priority for China through 2015.

On the manufacturing front, factories are still opening in China to make laptop computers or automobiles, despite a dent in exports from poor demand in Europe and the U.S. Some manufacturers have picked Southeast Asia to save on labor, but others have blazed deeper into China, expanding from their traditional bases in the Pearl River Delta to places such as Chongqing and Wuhan.

The CFO of Taiwan Semiconductor Manufacturing Co. told me last week that chip revenues from China should grow by about 60% this year. Mobile phone makers in China want the wafers to feed a steady domestic demand (never mind the economically ill West) for electronics. Share prices are up 5.9% since last year. An accident that the company has 389,000 retail investors?

The official line: China wants slower growth to control prices that have challenged exports and put apartments out of reach of common buyers. It also wants to narrow a wealth gap and raise mass living standards to promote social stability -- different from stoking quick investment that jacks up GDP figures but doesn't always trickle down. Communist leaders have eased monetary policy to make some of that happen.

And so what if it happens? It's not 7.5%, per se, that worries the already beleaguered world about where its second-largest economy is headed. It's the prospect that policymakers behind the $7.4 trillion GDP may be using that number to lie about a very different reality. Is the world looking at the economic equivalent of SARS, the respiratory disease that choked China in 2003 as the government tried to cover up a mounting caseload? Or will China grow at 10% again, claim itself the surgeon of the world economy and throw everyone off their market positions?

"No one would be worried if there were no doubt about 8.2%," says Tim Condon, Asia research head with ING Financial Markets in Singapore, citing the bank's growth forecast for China this year. "But there's also this 'unknown hard landing' camp."

Investors who think China's charts will fall into the red should start buying defensive stocks far from China. In the U.S., conservative utilities such as Consolidated Edison (shares up 14% over the past year) and Southern Co. (up 15.3%) might provide insulation. Avoid banks and real estate companies linked to China.

Better yet, forget the fear, likewise the math. Look at consumer appetite, the trailblazing by factories and China's lack of a Western-style credit crisis or sovereign debt problem. There's one other piece of the reality formula that often escapes debate: Beijing may lie about numbers, but it basically keeps broad promises.

China routed SARS within half a year of the outbreak. The government said in 2010 it would tighten controls over real estate prices. That crisis has passed its worst, and property share prices have risen accordingly since early April, notes Mark Williams, chief Asia economist with Capital Economics in London.

Most change in China is engineered or guided by the government, not a result of organic market forces. Whether China gets something done depends almost solely on how badly China wants to do it. China wants a mild slowdown but not a slump. So it's safe to park money in the broad category of risky assets, which include most company stocks linked to ongoing sources of growth in China.

For example, General Motors sold more vehicles in China than in the U.S. in 2010, and nothing on the policy assembly line today threatens auto shopping. Caterpillar has also made and sold infrastructure building equipment in China since the 1990s to shore up construction. After a slump, the government wants to rebuild construction investment this year in railways and low-cost housing. GM shares have lost about a third of their value since this time a year ago, and Caterpillar has shed 17%. Can't blame China, though.

I forecast a bit of economic remodeling to meet policy ambitions and absorb ripples from southern Europe. That will cost, but not for long. So, for now, steer away from cyclical-sensitive sectors such commodities and industrial machinery. Chinese banks, insurance companies and utilities are safer. On that front, try China's Hong Kong-listed Ping An Insurance Co. Its share prices have fallen by a quarter since this time in 2011, but it stands to gain as the government said in May it would let insurers issue convertible debt that can be counted as capital before being converted into shares.

Remodeling should be done before year's end. By then, Beijing may do more to stimulate consumption and fixed asset investments through subsidies and tax cuts, says market research firm Forecast Ltd. in Singapore. Company economist Connie Tse is eyeing a rebound by the fourth quarter, "which may potentially help keep full-year GDP to around the magic 8%."

Imagine the gains in the prices of riskier stocks if China's economic growth this year surprises at a more-than-magic 10%.