On January 19^th, 2016, China’s National Bureau of Statistics released its preliminary estimate of gross domestic product (GDP) for 2015, showing that the economy’s growth rate had decelerated from 7.3 percent in 2014 to 6.9 percent in 2015. The numbers brought to the fore a latent tension that has simmered between the markets and the media’s view of China’s growth prospects, and Chinese officials’ own reading of their macro-economy.

The markets and the media were quick to observe that China had suffered its slowest growth in a quarter century and, further, that the fourth quarter growth figure represented the lowest quarterly expansion since the aftermath of the global financial crisis. They pointed to the marked deceleration or outright decline within key segments of China’s investment-driven growth model—real estate fixed asset investment; capital spending by businesses; exports—as confirmation that the model had run its course, with no sign of a successor model on the horizon. The International Monetary Fund’s (IMF) marking down of China’s projected GDP growth for 2016 (6.3 percent) and 2017 (6.0 percent), the continuing proliferation of overinvestment-driven indebtedness within the economy (the ratio of debt to GDP rose from 250 percent in 2013 to 290 percent in 2015) and the volatility in domestic capital and foreign currency markets, are all reflections of this trapped transition. Should the scale of capital outflows ratchet upwards abruptly and a run on the renminbi ensue, a full-blown crisis and hard economic landing cannot be ruled out.

On the other hand, for China’s economic policy-planners, the decelerated rate of growth—which was consistent with the targeted GDP rate—was affirmation that the shift to a new growth model based on higher domestic consumption and expanded services was on-track. Rates of growth within key segments of the prevailing growth model were slow because authorities had deliberately engineered them to be so, such as the stark contraction in shadow bank lending due to stricter regulation and retrenchment in the real estate sector due to a measures such as the reduction of land supply in cities with excess housing inventory. The volatility in the markets, meanwhile, was a function of the growing regulatory pains associated with the implementation of a series of financial sector liberalizations (of interest rates, the exchange rate, capital flow measures, and deposit insurance) that was compounded by poor official signaling at a time of skittishness in international capital markets.

When combined with the still-powerful role of the state, fiscal and financial buffers provide authorities with ample policy tools to manage aggregate demand while coping with a disorderly correction or contingency. The central government’s pragmatic approach, as part of its Debt Swap program, to partially relax the hard budget constraint imposed on local government financing vehicles so as to ensure their continued financing—and demand creation—in response to weak economic data in early-2015, is a case in point. Moreover, the principal risk for China lies not in a measured deceleration in the rate of growth, but in reverting to the old habits of an over-stimulated economy. A calculated slowdown that is accompanied by a cutback in over-capacity, reduction in the stockpile of unsold homes, the restructuring of debts, and the wider entry of domestic and foreign service-sector suppliers is, in fact, is precisely the tonic that is needed.

The difference in the markets and the media’s view of China and that of Chinese officials can be chalked up, in part, to their varying time-horizons. Markets tend to obsess over short-term events, conflate inscrutability of intent on the part of regulators as evidence of their seat-of-the-pants decision-making, and remain trapped in a rear-view construction of China’s growth challenges. Chinese officials, meanwhile, remain riveted on realizing a set of forward-looking and longer-horizon programmatic reforms. The reforms to succeed those of the mid-to-late 1990s—such as state-owned enterprises, the fiscal system, the dualistic urban-rural economic structure, and of banking and finance—are no less ambitious than the their predecessor, and are in part meant to remedy the negative outcomes associated with some of these earlier reforms—notably the tax sharing system reform of 1994. Meanwhile, the structural, demographic, and urbanization-aided transition to a more consumption-driven growth model progresses steadily.

In 2010, the services sector as a share of GDP was 44 percent. By 2015, its share had risen to 51 percent—a full ten percentage points more than the once-dominant manufacturing sector. Since the Global Financial Crisis, the demand for urban labor has consistently out-stripped supply and wages as a whole have grown faster than nominal GDP. This rise in wages on the back of rising demand for labor, which has pushed up the share of income accruing to labor, has translated into higher disposable income, and a slightly reduced household savings rate, that has in turn fed into rising private consumption expenditures. Consumer spending has consistently outpaced GDP in recent years, contributed more towards growth than gross fixed capital formation and, as the recent National Bureau of Statistics data release confirms, contributed as much as 66 percent to GDP growth in 2015 – the largest such share since 2001. Indeed, as the instances of previous savings-surpluses and private consumption-constrained economies (Japan, Germany, Korea, Taiwan) that thereafter transitioned out of large and persistent current account surpluses attest, the typical surplus reversal was accompanied by an increase in net employment and consumption as labor shifted from the relatively capital-intensive tradeable to the more labor-intensive non-tradeable – typically services – sector.

China’s foremost structural economic challenge, then, is not that it is trapped within an existing growth model exhibiting diminishing marginal returns, even as it gropes for a successor model that is only faintly visible on the horizon. That successor consumption and services-driven model is already establishing itself as a new growth motor for the economy. Rather, the challenge is that this consumption-driven model is not establishing itself at a pace that is consistent with full internal rebalancing and efficient demand management or at a level of productivity that could avert a significant growth slowdown down the line. The challenge is not a trivial one.

The East Asian growth model has been singularly unsuited to making this investment-to-consumption-led transition and every high-growth, manufacturing-intensive economy that has attempted it, notably Japan and South Korea, has suffered a significant slowdown. Even as the service sector’s contribution to growth and domestic employment reached as high as 70 percent in these economies, the low productivity growth in the services sector constrained aggregate wages, shrank labor’s share of national income, stymied investment-consumption rebalancing and exacerbated inequality. The net outcome was the underperformance of the share of consumption within the economy. In turn, this compounded the problems related to aggregate demand management. The gap in demand, typically, was bridged via credit or asset price bubbles (a by-product of the financial liberalizations implemented) that coincided with the peaking of working age.

China risks finding itself at the mercy of similar structural dynamics. The impressive recent gains in the service sector’s share of GDP and the robust growth in per capita income has not been matched with an equivalent rise in the share of private consumption within the economy. Due to a continuing rise in the urban household saving rate, private consumption’s share of GDP has barely inched upwards from 36 percent of GDP in 2010 to approximately 40 percent in 2015. Until this trend, urban household savings rates have not reversed and urban disposable incomes, as a share of GDP, have significantly risen, China risks being ensnared in a sub-par growth equilibrium of its own making. China must actively liberalize services markets that would reap productivity-based wage gains for urban labor; shift the relative burden of taxation from labor income towards property, capital gains and inheritance taxes; and continue to fix the market for housing, and housing finance, to ensure affordability. Most notably, Beijing must be prepared to use its fiscal might to fund a more robust social safety net that would alleviate the preference for precautionary saving over discretionary consumption. If anything, the anticipated increase of the urban population by 300 million over the next three decades makes this agenda for action even more pressing.

China’s economic planners have profound prospective challenges to deal with. Obsessing over hypothetical short-term landings, whether hard or soft hard, improperly frames the economic tests at hand and is best left to the markets and the media.

Sourabh Gupta is an incoming Resident Senior Fellow at ICAS A version of this article appeared on China-US Focus