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Christopher Balding

China's Rebalancing Is Overrated

The new economy still looks a lot like the old one.
Healthy rail traffic numbers don't tell the whole story.

Healthy rail traffic numbers don't tell the whole story.

Photographer: Johannes Eisele/AFP/Getty Images

The optimists' case for China is fairly straightforward. Yes, the world's second-largest economy is grinding to its slowest pace in decades. But as investment and manufacturing -- traditionally the key drivers of Chinese growth -- decline in importance, domestic consumption and services are playing a bigger role: For the first time, services accounted for just over 50 percent of GDP last year.

This much-desired rebalancing should move China toward a far more sustainable growth model. New economy companies in technology, health-care, finance and retail are more productive and less polluting than smokestack industries. Robust consumption -- rail traffic is growing at 10 percent as Chinese spend more on leisure travel, while mobile Internet traffic has doubled -- is key to weaning the economy off its addiction to investment. As unproductive coal mines and steel factories shed workers, labor-intensive services should pick up the slack.