CHINA’S transition from an investment-driven to a consumer-led economy bears similarities to driving a hybrid car. While the driver may prefer to use the car’s greener electric engine, he can find that, when it lacks torque, he is compelled to switch back to the more traditional gas-guzzling form of propulsion.

This analogy, which comes from Tim Adams, president of the Institute of International Finance (IIF), an industry association, frames the challenge for Beijing as it seeks to boost the power of a consumer-oriented ‘new economy’ that relies on service industries, technological upgrading and greener living.

“Over time, the hybrid will increasingly provide the needed propulsion, though it currently lacks the torque to get over the hills or when it is facing headwinds,” Mr Adams said.

So what progress is Beijing making in building a ‘new economy’? How smooth is its transition away from the current power-hungry, investment-dependent model likely to be?

Some auguries appear positive. An analysis of 2015 financial results by Wind Information, a data company, shows the clear outperformance of ‘new economy’ corporates listed on domestic A-share markets compared with their ‘old’ economy counterparts.

With 68pc of A-share-listed companies having reported results, ‘new economy’ companies — defined as those in the accommodation, business services, information technology, science and research, transportation and retail sectors — posted average earnings per share of Rmb0.48 last year, up from Rmb0.45 in 2014, according to Wind Information.

The 2015 earnings-per-share value for A-share companies was the highest since an average Rmb0.5 hit in 2011 when China’s GDP expanded by an official 9.5pc.

China’s problem is that, while many of its new economy firms may be vibrant, profitable and innovative, they comprise too small a portion of the economy to dominate the investment narrative

By contrast, ‘old economy’ sectors — defined as agriculture, construction, utilities, manufacturing, mining and real estate — suffered a decline in average earnings per share last year to Rmb0.33, down from Rmb0.35 in 2014 and off a recent high of Rmb0.52 in 2010, according to Wind.

In a further sign that the transition is under way, the best performing sectors were all mainstays of the service-oriented economy: financial services, science and research, wholesale and retail and sanitation. At the other end of the spectrum were industrial conglomerates and mining sectors, both of which registered a net loss per share.

But in spite of these signs that a corporate-level transition is under way, from a macroeconomic perspective, the evidence is less compelling.

China’s problem is that, while many of its new economy firms may be vibrant, profitable and innovative, they comprise too small a portion of the economy to dominate the investment narrative.

This reality shows up in China’s official industrial survey, which covers almost all companies of significant size in the country — some 328,000 in total compared with the cohort of 2,828 A-share-listed companies.

Louis Kuijs, head of Asia economic at research firm Oxford Economics, calculated that the average profit margin of companies in the survey fell to 5.8pc in 2015, down from a recent high of more than 7.6pc in 2010.

Jianguang Shen, chief economist of Mizuho Securities Asia, also tempers his enthusiasm for the ‘new economy’.

“I believe in the long run, the new sectors will be able to offset the old sectors but, over the next two years, they will be unable to do so,” he said.

Indeed, the sharp bifurcation in fortunes is evident not only between industry sectors.

The map of China too shows a gulf between seven northerly provinces that posted nominal GDP growth of less than 2pc last year and central and southern counterparts, which expanded at a considerably faster clip.

These northern provinces are home to a disproportionate concentration of mining, metals and other heavy industries that have sustained most of the pain inherent in China’s transition.

If China senses an obvious loss of torque, it may not be long before it starts to rev up its traditional, investment-dependent motors.

Published in Dawn, Business & Finance weekly, April 4th, 2016