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China’s State Council recently unveiled a comprehensive blueprint for capital-market reform until 2020, in which it identifies two key objectives: “to support open, fair and integral market processes, and to protect investors, particularly the legal rights of small investors.” Achieving these goals, as the blueprint recognizes, will require policymakers to weigh market autonomy against state authority, innovation against stability, investor protection against caveat emptor and the temptation of rapid reform against the need for pragmatism. Can it be done?

From a policy perspective, the goal should be to strike a balance between competition (which spurs growth-enhancing innovation but can also generate instability) and cooperation (which promotes long-term social cohesion but can also lead to stagnation). In doing so, China’s leaders must account for three levels of competition: inter-enterprise competition, intersectoral competition, and competition among the interests of citizens, businesses and the state.

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