Financial markets today are thriving. The Dow Jones industrial average, the S&P 500, and the Nasdaq composite index have all reached record highs lately, with emerging-economy financial markets also performing strongly. But digital currencies could further destabilize an already-tenuous leverage- and liquidity-based system.

The bubbles in both finance and property are growing too big. The ordinary real economy is increasingly unable to bear the over-expansion of finance and property of the past 10 years. And NASDAQ is the most precarious bubble of all.

The performance of Chinese and U.S. shares are rarely compared side-by-side. Together though, they tell the story of the gains that have been available to investors over the past decades, in what are now regarded as the two largest economies—and most capitalised stock markets—in the world.

Chinese President Xi Jinping defended his government’s economic stewardship and said that China’s slowing growth and market fluctuations won’t deter needed reforms.

The lens of government intervention in China has led foreign observers to misinterpret some of the most important developments this year in the foreign exchange market and the stock market.

Moderating growth rates in the range of 5-7% per annum reflect the higher per capita income level and the changing growth paradigm in China. A modest slowdown is a necessary and healthy adjustment for China to transition to a new trajectory of more efficient and sustainable growth. But instead of greeting such a positive "new normal" with enthusiasm, the naysayers have reacted with dismay as though they would rather prefer the old growth model.

Tectonic shifts are occurring in the economy, financial markets, geopolitical strategy, and social policy. The ultimate test may well lie in managing the exceedingly complex interplay among these developments. Is China’s leadership up to the task, or has it bitten off too much at once?

As the Fed is paving way for the first rate hike in a decade, the world economy prepares for the greatest shift of capital flows in five years. Recent market turmoil in the U.S. and China heralds the transition.

The tremendous volatility of China’s markets has led to direct and indirect government involvement, which is ultimately a short-term fix. Beijing must re-commit to the opening of its financial markets and to a deepening of capital market reforms.

China’s current stock market volatility, though not necessarily desirable, represents a natural market correction from its June 12 peak. The economy has undergone a standard cycle of displacement, overtrading, monetary expansion, discredit, and revulsion, all in a matter of less than 12 months.