Despite seemingly mixed messages, China's great shift from easing to tightening has begun. While growth will continue to decelerate, it can still remain on the deceleration track, even as deleveraging has begun.

In May, Moody's Investor Service downgraded China's credit rating. But it took less than a day for China's financial markets to recover from the downgrade. Recently, index giant MSCI announced the partial inclusion of China-traded A shares in the MSCI Emerging Market Index, a move which was seen as overdue in the mainland because China is under-represented in global equity indexes relative to its economic influence. The inclusion is thus predicated on a long and gradual move.

In brief, Moody's believes the rapid rise of Chinese debt has potential to degrade its future prospects, while MSCI thinks China's future is grossly undervalued. The first focuses on the cyclical story; the second on the secular potential.