China’s People’s Daily recently announced major new guidelines to improve the economy’s market-based allocation mechanisms. These measures signalled Beijing’s determination to liberalise the economy and implement supply-side reforms that will strengthen the private sector. They follow several years of slowing growth and surging debt, both likely to be made worse by the impact of the Covid-19 pandemic.
Mainstream economists have long called for Beijing to improve China’s market mechanisms, and they have deplored the rolling back of the private sector over the past decade. But despite years of supply-side proposals and repeated reform pledges, there has been little evidence of a substantial reversal in the trend towards greater government control of the economy.
This shouldn’t surprise anyone. Over the long term, Chinese growth might indeed benefit from a stronger private sector and a more market-oriented economy. Yet in the near and medium term, this approach will do almost nothing to address either the real causes of China’s slowdown or its growing reliance on debt. Nor would it diminish Covid-19’s economic effects.