CAN'T HAVE A CLASH OF CIVILIZATIONS WHEN THERE IS ONLY ONE:

The new dual thrust of Chinese policy - redistribution plus re-regulation - strikes at the heart of the market-based "reform and opening up" that have underpinned China's growth miracle since the days of Deng Xiaoping in the 1980s. It will subdue the entrepreneurial activity that has been so important in powering China's dynamic private sector, with lasting consequences for the next, innovations-driven, phase of Chinese economic development. Without animal spirits, the case for indigenous innovation is in tatters.

With Evergrande blowing up in the aftermath of this sea change in Chinese policy, financial markets, understandably, have reacted sharply. The government has been quick to counter the backlash. Vice Premier Liu He, China's leading architect of economic strategy and a truly outstanding macro thinker, was quick to reaffirm the government's unwavering support for private enterprise. Capital markets regulators have likewise stressed further "opening up" via new connectivity initiatives between onshore and offshore markets. Other regulators have reaffirmed China's steadfast intention to stay the course. Perhaps they doth protest too much?

Of course, on one level, who wouldn't want common prosperity? US President Joe Biden's $3.5 trillion "Build Back Better" agenda smacks of many of the same objectives. Tackling inequality and a social agenda at the same time is a big deal for any country. It is not only the subject of intense debate in Washington but also bears critically on China's prospects.

The problem for China is that its new approach runs counter to the thrust of many of its most powerful economic trends of the past four decades: entrepreneurial activity, a thriving start-up culture, private-sector dynamism, and innovation. What I hear now from China is denial - siloed arguments that address each issue in isolation. Redistribution is discussed separately from the impact of new regulations. And there is also a siloed approach to defending regulatory actions themselves - case-by-case arguments for strengthening oversight of internet platform companies, reducing social anxiety among stressed-out young people, and ensuring data security.

Tweet   @brothersjudd