...underscored the inherent contradiction China faces -- between the leadership’s desire for the certainty of state control and the benefits of free markets.
This contradiction has been part of the Chinese economic system since pro-market reform began in the early 1980s. The government’s model encouraged private enterprise, foreign investment and international trade while keeping the “commanding heights” of the economy -- the financial sector, critical industries -- firmly in state hands. ...
... this tension between state and market becomes more dangerous as an economy advances. We know this is true from the experiences of Japan and South Korea, which both used systems similar to China’s, produced similar results and then suffered similar problems. ... The only way to solve it is for the state to allow the market to hold more and more sway over the economy. ...
...The way China’s policy makers can restore confidence in their markets, their economy and their competence is to eliminate the state-market contradiction they’ve created. This means allowing the stock market to find its own footing, the yuan to discover its real value and state-owned enterprises to compete fairly with the private sector.
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