“Without market-oriented change, China will have difficulty maintaining growth potential of more than three percent a year until the middle of this decade,” said a study published on Tuesday by the US institute Atlantic Council and the consulting firm Rhodium Group.
Inadequate market competition and inefficiency could reduce productivity and thereby dampen gross domestic product – “possibly by trillions of dollars in five years”. The government’s extensive crackdown on private companies – from technology to education – suggests greater government scrutiny in the coming years.
Ever since President Xi Jinping proclaimed the pursuit of “shared prosperity” at the beginning of August, the world has been staring at the second largest economy after the USA. Corporations are suddenly donating billions to charity, the rise in rents is capped, tax evasion is being fought harder, while IPOs have been canceled and online games restricted. According to investors, a fundamental change is underway in China. Aggressive reforms aimed to reduce the enormous inequality – if necessary at the expense of companies. This has led to significant price losses on the stock markets.
According to the study, China’s economic growth gradually weakened from 2011 to 2020. The government has set itself a growth target for this year after it had only increased by 2.3 percent due to the 2020 corona pandemic. According to the study, China has made progress in some areas, such as trade, and has reduced tariffs to a level that is comparable to or even below that of the industrialized countries. But the latest political signals contradict a market-oriented course. “President Xi’s promise at the beginning of his term of office to make the markets decisive threatens to fail,” the report said.
It also points out that ordinary Chinese could hardly invest abroad. This has led to an overcapacity in domestic capital, which in turn has increased overcapacities in many domestic industries.
(Reuters)
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