China's shift to services industry

THE economic evolution underway in China has captured the world's attention. In the past is a hypergrowth economy in a catch-up phase, driven by investment and manufacturing, much of it export-related. In the future is a more mature economy, with slower but still significant growth and a much bigger role for services and middle-class consumption. In between is a transition that appeared to enter a critical phase in 2015, fraught with risks and uncertainties that are new for China.

Official attempts to cope with a deflating stockmarket bubble and to reposition the renminbi unsettled global markets over the summer, and concern about slowing (and potentially overstated) growth heightened in the autumn. Investors are applying fresh scrutiny to problems that have built up in different parts of the economy and questioning whether China's historically sure-handed policymakers will be able to manage the passage smoothly. Along with slower growth rates, greater volatility may also be part of China's new normal.

It is sensible to worry about the consequences of China's long housing and infrastructure build-out coming to an end. Yet it's also wise not to lose sight of the potentially positive outcomes that structural change in the economy will bring. Both sides of the story are on view today.