How worried should observers be about China’s economy? As recently as midsummer, that seemed like an academic question geared to the long term. In recent months, observers who were already concerned were further dismayed whenever Beijing moved to reel in companies considered to be in the vanguard of the “sunrise industries” that China celebrated as the answer to future competitiveness, growth, and jobs. In response to fresh doubts about the wisdom of these policy campaigns, China’s private-sector entrepreneurs competed to demonstrate fealty to their leaders rather than complain, and many foreign investors waved away worries with the message that Chinese Communist Party (CCP) leaders knew what they were doing and should be trusted.
Writing in Foreign Affairs this past summer, I noted that Chinese President Xi Jinping seemed to believe that he has “another decade to tinker with the country’s economic model.” In reality, I pointed out, “there are at most a few years to act before growth runs out. If China’s leaders wait until the last minute, it will be too late.” Events in the past months demonstrate how the clock is running down. Property developers large and small ran out of liquidity to pay their bills, revealing the systemic risks of turning a blind eye to undisciplined property investments and causing a spillover of anxiety into bond markets at home and abroad, where investors had lent money to these firms and to indebted companies in other industries. Perceptions of the Chinese economy’s immunity to the dangers of stepping off the market reform path have changed, and concerns have grown that the CCP has missed the window for avoiding a hard landing.
