Nicholas Lardy: Xi Jinping’s turn away from the market puts Chinese growth at risk: "Credit is flowing to state-owned companies, not more productive private ones.... Xi... has also repeatedly emphasised the role of state industrial policy and state-owned companies, despite overwhelming evidence that the latter are inefficient. Even after receiving various direct subsidies, the Chinese ministry of finance acknowledges that more than two-fifths of these state companies persistently rack up losses. They are kept afloat with massive increases in bank credit that are almost entirely responsible for the increase to record levels of leverage in China’s corporate sector.... Predictably, the return on assets of the largest state-owned companies has fallen by more than half since the merger mania began. At the same time, the productivity of private companies has increased, and in the industrial sector is now almost three times that of their state-owned counterparts.... Without a return to a more marketed-oriented economic policy, even if bilateral trade disputes with the US are resolved, the likelihood is that China’s growth will slow further—with unpleasant consequence...


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