A New Economic Era for China Goes Off the Rails - New York Times

By KEITH BRADSHERJAN. 7, 2016

HONG KONG — When President Xi Jinping of China convened a group of 
top officials to discuss the economy last month, the highly publicised 
meeting was seen as a moment of triumph.

A stock market plunge last summer, and a messy currency devaluation that 
followed, had faded from global view. In the relative calm, he seemed to 
usher in a new era of economic management, promising policy 
coordination at the highest levels to prevent another bout of turmoil.

Less than three weeks later, his plans have been derailed as China’s stock 
market and currency once again rattle investors around the world. The 
latest rout sets up a challenge for Mr. Xi, who has positioned himself as the 
master of the country’s economy.

At every turn, the president’s efforts to manage the economy, market and 
currency have been undercut by global headwinds and haphazard policy 
making. Three initiatives this week, involving currency depreciation and 
two sets of stock market rules, have been particularly discordant. All three 
were hastily suspended after China’s stock market plunged on Thursday 
morning.

He also cannot move forward on the bolder actions needed to head off a 
more serious economic slump, such as forcing hopelessly indebted state-
owned enterprises to stop borrowing money and shut down. Otherwise, he 
risks further eroding short-term confidence and growth, which have 
depended heavily on this borrow-and-spend mentality, and mass layoffs 
could follow.

Mr. Xi’s options are also more limited than in the past. He and his aides 
engineered the elevation of the renminbi to the ranks of the world’s leading 
currencies, a status bestowed by the International Monetary Fund in 
November. But in doing so, he gave up some control, allowing market 
forces to play a bigger role.

In the last couple of years, China had begun allowing, even encouraging, 
companies and people to invest more of their wealth overseas. Doing so 
helped reduce deflationary pressures at home from chronic over investment 
and overcapacity, and increased China’s influence around the world.