China’s economy grew at its weakest pace in six-and-half years in the third quarter, but beyond the headline number, analysts see signs of rebalancing.

GDP growth in the third quarter beat market expectations slightly, expanding by 6.9 percent, the National Bureau of Statistics said on Oct 19.

Quarter-on-quarter, the economy grew by 1.8 percent, unchanged from the second quarter.

However, the expansion is the weakest since the first quarter of 2009, with Sheng Laiyun, spokesman for the bureau, attributing the slowdown to weak external demand and a reduction of inventory in traditional industries such as cement and steel.

But rebalancing is evident, and while traditional growth engines sputter, consumption and services are holding up, offsetting the slack.

Industrial output in September slowed further to 5.7 percent from 6.1 percent in August, while fixed-asset investment growth－a key driver of the economy－fell further to 10.3 percent in the first nine months.

Real estate investment was a particular drag on the economy, slowing to 2.6 percent in the first nine months, down from 12.5 percent recorded in the same period a year ago.

For the first time, service industries comprised more than half (51.4 percent) of GDP, 10.8 percentage points ahead of manufacturing.

From January to September, spending on consumption contributed 58.4 percent of growth, compared with 49.1 percent a year ago. Retail sales strengthened from 10.5 percent in July to 10.9 percent in September.

Sheng said: “The forces that prop up the economy and drag it down have reached a new equilibrium. The ‘propping-up’ forces include ongoing industrialization and urbanization, the untapped hinterland regions, and the upgrading of consumption.”

Premier Li Keqiang said on Oct 19 that expansion of 6.9 percent is in line with the government’s annual growth target.

“The Chinese economy is running smoothly … the government has provided adequate employment. … Our goal to achieve around 7 percent annual growth this year can be achieved, and that will provide a stable outlook for the market,” Li said.

Tom Orlik and Fielding Chen, Bloomberg economists, noted that growth had avoided a hard landing because “a resilient service sector shrugged off the stock market crash and offset continued weakness in industry”.

Zhu Haibin, chief China economist at JPMorgan, said: “We expect that the ‘two-speed economy’ phenomenon will continue, in that service sector growth will continue to outperform the manufacturing sector. The manufacturing slowdown is the bigger problem for the Chinese economy in the near term.”

Economists cited accelerated loan growth as evidence that economic expansion may stabilize in coming months.

Most economists expect the central bank to cut interest rates by another 25 basis points and to lower the reserve requirement ratio by 50 to 100 basis points by the end of the year.