China's Unstable Political Economy

Xi Jinping may manage to prevent the burst of the real estate bubble, but China's economy isn't heading for more-sustainable growth.

Evergrande's woes are a reminder that China's political economy under Mr. Xi has become even more unstable, even as Beijing grows more impatient to displace America as the dominant power.

This happened in 2008, when Chinese state-owned banks injected about $15 trillion of new capital into the economy for fixed-investment projects over the next six years, as export markets in North America and Europe stagnated.

Politically driven lending has been a feature of the Chinese political economy ever since.

Aren't Evergrande's woes evidence that Beijing is serious about deflating a dangerous real estate bubble, reducing moral hazard in lending, and breaking the economy's addiction to debt, to prevent a terrifying reckoning sometime in the future?

Purchases of existing and off-the-plan properties are used extensively as collateral for further borrowings, and any rapid deflation in asset values could pose a profound risk to the entire economy.

The primary cause of inequality in China is entrenched privileges for state-owned enterprises and the well-connected at the expense of the truly private economy.

https://www.wsj.com/articles/china-political-economy-state-owned-financial-crisis-evergrande-real-estate-11633550661