China’s economic freedom deficit distorts markets beyond its borders

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In an attempt to present the Biden administration’s approach to charting the course of US-China economic relations, US Trade Representative Katherine Tai underline that the bilateral relationship is “complex and competitive”.

Most importantly, Tai Noted, “In recent years, Beijing has doubled its state-centric economic system. It’s increasingly clear that China’s plans do not include meaningful reforms to address concerns shared by the United States and many other countries. “

Indeed, this is the crux of the matter in advancing the “complex and competitive” economic relationship between the United States and China.

To be fair, China’s economic development has been notable since it opened up more to the world in the late 1970s and allowed for the success of a more capitalist economic model.

Entry into the World Trade Organization in 2001 further opened the Chinese market to foreign trade and investment, enabling China to lift millions of people out of poverty and more Chinese citizens to gain access. to a better quality of life and leisure.

Beijing has long taken responsibility for China’s economic success and wants it to be so.

However, the Chinese Communist Party has never abandoned its socialist ideology and authoritarian approach. Chinese President Xi Jinping has successfully injected the party’s new paradox between seeking greater control that puts the party above all else and pursuing much-needed positive economic outcomes, which is increasingly difficult.

China has often pretended to reform its bloated and inefficient state-owned enterprises and dominant economic structure. Unfortunately, recently announced reforms rarely bear fruit, with pro-market reforms having slowed down and even derailed in some sectors.

About 15 years ago, the one-party government in Beijing began to redefine the ‘reform’ of state-owned enterprises, using the phrase to refer to the centralization of state control over key industries, to the opposite of what it means in the rest of the world.

The Third Plenum of the Communist Party of China in 2013 described how the state would reduce control over state trading enterprises, while pushing them into key industries that most contribute to China’s economic development and national security. focus on the “core” areas of their business.

In practice, this has translated into an ever-increasing deference on the part of state-owned enterprises to the top-down control exercised by party officials over their activities.

Pursuing and sustaining high rates of economic growth is of course not the primary objective of a communist dictatorship. The real goal is always the party’s maintenance of full control over the population of the country, usually by any means necessary. The party seems to understand that stimulating continued economic growth is a key factor in maintaining popular support.

This makes its affinity continue to rely on its particularly ill-advised and ultimately unsustainable “state-centered economic system”. This is bad for China in the end, but it certainly also distorts markets beyond China’s borders.

China did not fare well in Heritage Foundation annual report Index of economic freedom, which measures economic governance in key areas related to economic growth and prosperity.

China’s economic freedom has grown in recent decades, but at a snail’s pace. The Chinese economy remains “mostly non-free” and ranks 107th (out of 179) in the 2021 index, lagging behind the majority of other countries in maximizing opportunities for greater economic dynamism .

In a recent Wall Street Journal commentary, former New Zealand Commerce Minister and Ambassador to the United States Tim Groser made some timely observations of highlighting:

We do not yet know where the new political scenario that the Chinese Communist Party is writing will lead the world’s second largest economy. … Things have moved back in recent times, in the direction of greater centralization and state control.

Unambiguously, this “greater centralization and state control” – which stifles the intellectual, social, and economic strength of the Chinese people – is at the heart of all the issues Washington must address in shaping its path to communist rule.

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