China Needs to Stop Fighting Itself

To supplant the U.S. as the No. 1 world economy, China has to overhaul its own. Yet its rulers are caught between the desire for far-reaching reforms and a deeply ingrained instinct to shelve them when things go wrong. So the yuan’s recent surprise devaluation gave China’s exports an edge—even though President Xi Jinping and his advisers have stated their desire to make consumption, not exports, the main engine of the economy. And the government intervened to stem the slide in stocks—while financial reforms were meant to build a stock exchange that responds to market forces. “The leadership is so paralyzed and preoccupied by even a modest downturn that it reacts with the same old fiscal tools of investment and pump-priming,” says David Shambaugh, director of George Washington University’s China Policy Program.