China faces a crucial choice between the competing priorities of political control and economic liberalisation. This summer the first tremors have already been felt.
The gyrations of the Shanghai stock market — down almost a third from its mid-June high — and the exchanges in Shenzhen may seem disconnected from the real economy, since only a small proportion of Chinese and even fewer foreigners invest in them. But the market turbulence and the authorities’ response raise a fundamental question. Will the world’s second-biggest economy shift to a course that will sustain not only its own growth but also global prosperity as a whole? Or will it instead be stuck in an outmoded model in which meaningful reform is deferred because of the ruling elite’s determination to retain control? Much depends on the final decision of the Chinese Communist party, which has until now bolstered its rule with the fruits of rapid economic expansion. The significance of its choice goes far beyond China’s borders.
Some 20 months ago the party launched an ambitious programme of change, including in the financial sector. It sought to “harness the dynamism of the market” to propel China into a new stage of economic evolution, 35 years after Deng Xiaoping connected the People’s Republic with the world. But reform is not always an unalloyed blessing, especially in its early stages. It can reduce growth and cause tensions and upsets — as was the case in 1980s China.