A far cry from economic crisis despite setbacks

The prospect of an economic meltdown in China has been sending tremors through global financial markets. Yet such fears are overblown. While turmoil in Chinese equity and currency markets should not be taken lightly, the country continues to make encouraging headway on structural adjustments in its real economy. This mismatch between progress in economic rebalancing and setbacks in financial reforms must ultimately be resolved as China now enters a critical phase in its transition to a new growth model. But it does not spell imminent crisis.

Consistent with China's long experience in central planning, it continues to excel at industrial re-engineering. Trends in 2015 were a case in point: The 8.3 percent expansion in the services sector outstripped that of the once-dominant manufacturing and construction sectors, which together grew by just 6 percent last year. The tertiary sector rose to 50.5 percent of the country's GDP in 2015, well in excess of the 47 percent share targeted in 2011, when the 12th Five-Year Plan (2011-15), was adopted, and a full 10 percentage points more than the 40.5 percent share of the secondary sector's activities (manufacturing and construction).

This significant shift in China's economic structure is vitally important to its consumer-led rebalancing strategy. Services development underpins urban employment opportunities, a key building block of personal income generation. With the services sector requiring about 30 percent more jobs per unit of output than manufacturing and construction, combined, the tertiary sector's relative strength has played an important role in limiting unemployment and preventing social instability - long China's greatest fear. On the contrary, even in the face of decelerating GDP growth, urban job creation hit 11 million in 2015, against the government's target of 10 million and slightly more than the 10.7 million in 2014.