Economists too often talk about policy changes in the abstract, ignoring the drawbacks that even sensible reforms can bring. For years, analysts have been urging China to shift its economy away from heavy industry and toward services and consumption. Yet now that Beijing is taking heed, the costs are piling up.
Most obvious is a deepening gulf between winners and losers. A recent study from Peking University found that China has become one of the most unequal countries in the world. The richest 1 percent of households owns a third of total wealth. As the government tries to transition away from coal and steel, and toward tech and finance, this divergence is likely to worsen.
In fact, it's already starting to. Regionally, the differences between China's old and new economies couldn't be starker. The rust belt province of Liaoning, long reliant on steel mills, is now in recession. In finance-focused, high-tech Shenzhen, real estate prices have risen by more than 60 percent in a year, the fastest rate in the world.