In China, the state controls the commanding heights of the economy—an arrangement that has fed the outside perception that Beijing poses a particular threat to the global economy.
The Chinese state limits imports, for example, and rewards foreign firms that shift production to China and voluntarily share their technology with Chinese partners. For nearly ten years, state control of the exchange rate has kept the country’s currency significantly undervalued. Generous credit to state-backed firms fuels overproduction in sector after sector, allowing Chinese companies to undercut their global competitors in important markets (notably 5G technologies). And now new state-backed investment firms are supporting companies that aim to displace many foreign imports from China’s market, such as those of advanced semiconductors.
But the pressure China puts on the global economy actually also stems from the opposite problem—namely, the limited role of its government. Far from a behemoth, the
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