Until the financial crisis laid low the notion that markets were infallible, the assumption had always been that, as China grew richer, the state would wither. In part, the argument was circular. If China were to continue to prosper, the dead hand of government would have to be loosened in order to give private enterprise the space to create wealth. That glib logic has been jettisoned, at least temporarily. If even Washington has turned some of the captains of American industry into glorified civil servants, it should come as no surprise that Beijing, too, has become more statist.
The most obvious example is China's monetary and fiscal stimulus. Beijing, like other governments, has massively cranked up spending, in its case announcing plans to funnel Rmb4,000bn, equivalent to 15 per cent of output, into infrastructure over two years. As well as the usual fare of roads and bridges, it is also trying to build up soft infrastructure, the social safety net economists say is necessary if people are to spend. After years of laying off tens of millions of state workers and dismantling the iron bowl of cradle-to-grave care, China is seeking to rebuild a mini-welfare state.
This state re-encroachment – entirely necessary given the collapse of external demand, in spite of signs of improvement in yesterday's trade figures – is more obvious still in the banking industry. State owned banks, which now have foreign shareholders, have suddenly decided that this is the time to lend. This year, they have seen fit to increase credit in local currency by more than 160 per cent. No one can possibly imagine this is the choice of free agents responding to market signals.