China's economic slowdown: 11 things you should know
Updated by Matthew Yglesias on September 3, 2015, 7:01 a.m. ET
11) This summer has shaken faith in China's leaders
Much of this has been in the air for years. The reason it's coming to a head now is that the stock market bubble and subsequent collapse have shaken faith in the Chinese government's ability to form and execute coherent policy.
When the bubble was on its way up, the government tried — and failed — to slow it. Then when it started to pop, the government tried — and, again, failed — to slow the pace of the collapse. China devalued its currency to boost its economy, but didn't go far enough. It's cut interest rates repeatedly, only to find that it needs to cut them again. Now the government seems to be arresting people who express negative opinions about the stock market outlet.
This summer's events have laid bare the reality beneath the incredible successes of the past 20 years. China remains a middle-income country with shaky economic institutions and an opaque and unaccountable political system. Three decades of stellar growth starting from a rock-bottom floor have landed China at a level of per capita prosperity that's similar to Serbia or Peru or the Dominican Republic — places that nobody regards as obviously amazing investment opportunities even though in some ways their political systems are more solid than China's.
Loss of faith has a self-fulfilling aspect to it. To the extent that people believe China can conquer its present-day challenges, actually conquering them becomes easier. To the extent that people begin to write China off, then it will have greater difficulties in pulling off the kind of transition the country needs.
