Kevin RuddandDaniel Rosen

Opinion | Can we believe China will reform its economy this time, given the empty promises of the past?

The government cannot pursue stimulus like it did in the 2008 global financial crisis as piling on more debt would aggravate the current risks to the economy

Significant economic reforms within China will be key to levelling the global playing field and preventing many foreign players from packing up and leaving

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Why you can trust SCMP

Kevin RuddandDaniel Rosen

Published: 1:00am, 23 Jun 2020Updated: 1:48am, 23 Jun 2020

In 2013, the Chinese government laid out a policy agenda that promised real reforms to an economy laden with debt and distorted by the influence of the country’s large state-owned enterprise sector. Instead of seeing that agenda through, it chose to dodge the risks entailed by marketisation and has since reverted to what it knows best – state control over the economy and the semblance of stability that comes with it.

The China Dashboard, a joint project of the Asia Society Policy Institute and the Rhodium Group, has been tracking China’s economic policies since 2017. Having analysed objective data across 10 critical spheres of the country’s economy, we find that China’s reforms have been tepid to nonexistent in the past three years.

The Chinese government’s failure to deliver on its promise of a more open economy has undermined its credibility and fuelled the growing global backlash it is experiencing today. Even before Covid-19 arrived, the lack of reform had sapped China’s economic performance and made it persistently overreliant on debt, leaving its domestic private sector increasingly disheartened.

China is now at a crossroads. The Covid-19 crisis sent its economy plunging by a reported 6.8 per cent in the first three months of this year – its first acknowledged quarterly contraction on record. For the first time in more than 25 years, China is not publishing a growth target.

Moreover, because debt is a bigger problem for China now than it was in 2013, the government does not have the option of pursuing stimulus on the massive scale it did during and after the 2008 global financial crisis.

Piling on more debt would aggravate the current risks to the economy, which include a property market bubble and a swollen banking sector that, after a quadrupling of loan portfolios in the past decade, is sitting on mountains of shaky debt.