News headlines in the New Year have been dominated by volatility in financial markets. The recent market volatility has been caused mainly by developments in China including the depreciation of the renminbi. To put the volatility into some context, it is important to recognise that the Chinese economy is going through a major transition. China’s old model of growth relied on exports and debt-fuelled investment. For a long time this model worked well with real GDP growth averaging over 10% in the 2000s. So why is this model not working anymore?