The View | To rebalance its economy, China must do more than regulate the market – it must reform the state

Uneven economic development and US pressure have prompted China’s turn back towards the state amid harsh crackdowns on tech, tuition and property

But the state, perhaps as much as the market, has been at the centre of China’s unbalanced growth and must be an integral part of any lasting solution

Reading Time:3 minutes

Chinese President Xi Jinping is seen at the end of the 20th party congress on a giant screen in a Hangzhou commercial district in Zhejiang province on October 23. Photo: AP

Published: 2:30pm, 8 Nov 2022

After China’s 20th party congress, there was a global sell-off of Chinese stocks from Hong Kong to New York. Among the most affected were Chinese internet platform companies, the subject of regulatory crackdowns in recent years. A common perception among foreign investors is that China’s economy may take a back seat to ideology and stability in the coming years.

In 2013, Beijing announced that the market would play a “decisive role” in allocating economic resources. The same language appeared in the latest work report for the party congress – but was given scant notice or little credence by investors.

For many observers, the market in China has been retreating in recent years. Beyond ideology, what could be the context for this seemingly unsettling turn?

Despite decades of high growth, China’s economy is highly unbalanced with deep contradictions. As early as 2007, then-premier Wen Jiabao argued that China’s economic growth was “unstable, unbalanced, uncoordinated and unsustainable”. Should Beijing wait for the day of reckoning or take some tough rebalancing decisions now?

Imposing financial guidelines on a runaway real-estate sector is perhaps such an attempt of rebalancing – although the unintended consequence is the unravelling of an important sector. Defaults on property-related loans funded by trusts are also undermining the stability of the financial sector. The magnitude of the crisis only highlights the unsustainability of the financing of the property sector.

The clampdown on property speculation may also have been to prevent mainland China from developing the intractable social problems of unaffordable housing seen in Hong Kong. Homes in leading mainland cities are already among the most expensive in the world relative to income.

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.css-1m2rp1p{color:#34b8b5;}The View | To rebalance its economy, China must do more than regulate the market – it must reform the state

The View | To rebalance its economy, China must do more than regulate the market – it must reform the state