China’s Risky Reforms

China is on the brink of large, necessary, and dangerous transformations that promise to change the country for the better – or make everything, including regional stability, much worse. The entire world has a large stake in what happens next.

NEW YORK – When it comes to economic reform, China’s leaders no longer believe that time is on their side. With a new sense of urgency, President Xi Jinping and his inner circle are attempting one of the most ambitious economic and social-policy reform plans in history.

But in any authoritarian country, change creates risk. Consider the scale of the proposed plans. For China to reach the next stage of its development, a much larger share of Chinese-made products now destined for Europe, America, and Japan must be sold to consumers inside China. This shift will require a big increase in local purchasing power – and, therefore, an enormous transfer of wealth from large domestic companies to Chinese households.

In addition, China’s leaders appear to be on the verge of approving 12 new regional free-trade zones, which will drive competition and efficiency on a new scale in many economic sectors. They also recognize the need for further liberalization of the country’s financial system, a move that will require tolerance for outright defaults on bad loans – and the anxiety and anger that comes with them.

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