SPECTACULAR AS they are, and for all the angst they are causing market mavens around the world, China’s stock-market gyrations probably do not represent a fundamental threat to either the Chinese or the global economy. Rather, the sudden plunge in share values in Shanghai, exacerbated by ham-fisted government controls, was the weird but predictable result of a situation in which a Communist-run government first goosed stock prices far beyond sustainable levels, as a sop to restless middle-class investors, then intervened to show that the authorities in Beijing still have everything under control.
The deeper problem, of which this week’s volatility is a symptom, is that China has probably squeezed as much growth as it can out of the export- and investment-led model that produced such spectacular results over the past three decades. Further gains must come from a shift to greater domestic consumption. And, indeed, the country’s rulers have said so themselves on repeated occasions. Alas, they have no better idea how to carry that off smoothly than they do how to tame the stock market.
In fairness, even the most adept, best-intentioned leaders of the most democratic country might find it difficult to enact reform over the objections of powerful groups that have an interest in continuing business as usual. Japan’s export-led growth model went bust a quarter-century ago, and it’s still struggling for a sustainable alternative. What’s troubling about China today, however, is that, unlike Japan, it is governed by a single party that not only lacks any democratic tradition but also actively opposes democracy. There is a fundamental contradiction between what China’s economy needs — less top-down control, more power for ordinary consumers and entrepreneurs — and what China’s chieftains instinctively want: control.
The government rang in the new year not by outlining new measures to bolster property rights or the rule of law but by publishing previously undisclosed warnings from President Xi Jinping about “gathering groups of die-hard friends together to inappropriately discuss major party policies,” and party members who “have been keen to poke around and . . . ask the things they should not ask.” Meanwhile, China has been devaluing its currency to fire up exports once again. At best, this will provide a short-lived fillip to growth. At worst, it will prove self-defeating by stimulating capital flight and competitive devaluations by trading partners.
Trained as Marxist-Leninists, China’s leaders should know that the contradictions within their confused system of state-controlled capitalism are heightening, well beyond their capabilities to control. The sooner they get on with the business of genuine reform — which is to say, the sooner they grant their society more economic and political freedom — the better off they, the Chinese people and the rest of the world will be.