Its hybrid model needs a partial refit, argues the Princeton academic
GDP
However, this hybrid approach must also grapple with the inherent tensions between state intervention and market dynamics. With an expansive, hierarchical government system, China employs potent career incentives—through promotions and demotions of local officials—to align local and regional governments with the central government’s agenda.
This has dampened entrepreneurial vigour, making business owners reluctant to embark on new ventures, even in an economy with substantial savings and liquidity. Heightened uncertainty, coupled with weak prices for real estate—the largest asset held by Chinese households—has hurt consumer confidence. Geopolitical tensions have hit Chinese exports and made foreign firms queasier about investing in China.
This presents policymakers with a thorny dilemma. They need to respond firmly with both short-term and long-term measures.
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