Chinese leaders emerged from a four-day policy meeting today, and according to state media, leaders are announcing a shift toward a more market-based Chinese economy.
China’s communist leaders said the government would allow the markets to play a "decisive" role in allocating resources in the world’s second-largest economy. For a country where local governments tend to micro-manage the allocation of resources from the central government, this shows China’s leadership wants the private sector to get a fair shake.
And that gets at the heart of China’s economic problems: The state controls a lion’s share of the flow of money in China, and in the past twenty years, that capital has flowed mainly between the government and its own state-run companies, which have built roads, high-speed rail lines, and other infrastructure projects. All of this has spurred a steady rate of GDP growth.
Economists say China needs to change this formula for growth so that consumption is spurring the country’s economic growth, with the private sector taking the lead. So ceding control to the markets means a fairer playing field for private businesses in China as well as for – potentially – foreign businesses, including U.S. companies which are investing in China at an unprecedented rate.