How Beijing’s overmanagement is doing China’s economy and businesses more harm than good
- Disruptive policies in environmental regulation and debt management, for example, hurt investor confidence, stymie reforms and contribute to China’s economic slowdown. For long-term stable growth, Beijing needs to get out of its own way
China’s economic growth is expected to have slowed to just over 6 per cent, and it is unlikely to accelerate any time soon. In fact, analysts generally agree that China’s economic performance last year – its worst in nearly 30 years – could be its best for at least the next decade.
What observers cannot seem to agree on is how worried China should be, or what policymakers can do to improve growth prospects.
Optimists point out that, given the size of China’s economy today, even a 6 per cent growth in gross domestic product translates into larger gains than double-digit growth 25 years ago.
Long-term growth depends on the decentralisation of government authority, increased marketisation and greater economic liberalisation, with the private sector gaining far more access to finance and other factors of production.
Of course, protecting the environment is important, not least for the sake of public health, and government-induced institutional changes have improved air quality.
The short-term consequences of Chinese government overreach can also be seen in the financial sector.
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Beyond the growth impediments stemming from how the government pursues its goals, moreover, is the problem of how rapidly, unexpectedly and frequently those goals change. This disrupts investor expectations and erodes market confidence. Not only are companies hesitating to invest, many are scaling back their workforces.
Far from opening the way for progress on structural reform, the Chinese government’s excessive top-down interventions are reinforcing structural imbalances. Indiscriminate and unpredictable top-down dictates hurt all businesses, but private companies suffer the most. After all, state-owned enterprises enjoy powerful official protections, making them more likely to survive, despite their inefficiencies.
In the longer term, such an approach will strengthen investor and market confidence, enable the most dynamic companies to thrive and support the stable economic growth needed for China to become a high-income developed country by mid-century. To achieve this goal, the central authorities may eventually have to get out of their own way.
Zhang Jun is dean of the School of Economics at Fudan University and director of the China Centre for Economic Studies, a Shanghai-based think tank. Copyright: Project Syndicate