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Macroscope | Is China back? That will require more than just a reversal of recent policies

  • China’s leadership has announced major policy U-turns that have left global investors and other observers bullish about its economic future
  • But correcting policy errors is no substitute for the reforms needed to deliver robust growth, including a return to political pragmatism and honest feedback

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President Xi Jinping leads Communist Party officials during a visit to an exhibition at the Yan’an Revolutionary Memorial Hall in Yan’an, northwest Shaanxi province, on October 27, 2022. Photo: Xinhua
When US President Joe Biden took office in 2021, his first message to the rest of the world was: “America is back.” Having assumed his third term as general secretary of the Communist Party in October, President Xi Jinping appears to be issuing a similar proclamation.
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In the past two months, China’s leadership has announced or signalled a series of major policy reversals, abruptly ending nearly three years of severe “zero-Covid” restrictions, easing the crackdown on tech companies and the real-estate sector, reaffirming its commitment to economic growth and extending an olive branch to the United States at the Group of 20 summit. With the world’s second-largest economy apparently reopening its doors for business, investors are reacting with enthusiasm.
But while China’s pro-business reset bodes well for international trade and global peace and stability, putting the Chinese economy on the right track will require more than just a reversal of recent policies. What is really needed is bringing pragmatism and honest feedback back into the political system. As I showed in my book, How China Escaped the Poverty Trap, these attributes defined China’s adaptive governance during the Deng Xiaoping era.
There is a common misperception that the “China model” means top-down control by a strong, authoritarian government, flanked by muscular state enterprises. In fact, 30 years of poverty and suffering under Mao Zedong proved that the combination of top-down planning, state ownership and political repression was a recipe for failure.

That is why Deng introduced a hybrid system that I call “directed improvisation”. The Communist Party remained firmly in power, but the central government delegated authority to numerous local authorities across China and liberated private entrepreneurs from state controls.

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Playing the part of a director rather than a dictator, the government in Beijing defined national goals and established appropriate incentives and rules. Meanwhile, lower-level authorities and private-sector players improvised local solutions to local problems.

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