China Loses Control of the Economic Story Line

Yet entering year four--out of an expected 10--of Mr. Xi's administration, the reforms are largely on hold... But evidence is building that reforms have stalled for a more basic reason: Mr. Xi, despite the early hype, sees only a limited role for markets.

There's been some obvious backtracking on market principles, notably last summer's crude intervention to rescue the Shanghai stock market when a government-induced bubble burst. Authorities forced brokerages to buy shares, barred large investors from selling and blamed speculators, journalists and even "hostile foreign forces" for the mess.

An offhand approach to markets has had global spillover: International Monetary Fund leader Christine Lagarde, among others, has expressed exasperation with how China spread financial panic by changing its currency regime last year without adequate explanation...

Mr. Xi faces a far more complex set of challenges [than prior reformist Presidents] at the helm of a $10 trillion-plus economy.

But his big moves to date suggest he thinks he can still effectively control its direction through administrative engineering and state planning. A good example is the way he is merging government enterprises to create even more powerful monopolies. A plan to allow private companies to invest in these Goliaths hasn't gone very far.

...

The U.S.-China Business Council, an industry lobbying group, issues a regular scorecard on the progress of Mr. Xi's ambitious reforms that testifies to dismay among its members. Even though Beijing frequently boasts about its success in cutting red tape and streamlining a notoriously complicated licensing regime, a council survey showed 77% of companies see no progress at all in those areas.

Without a convincing narrative to offer hope of improvement, investors are drawing an increasingly bleak conclusion: On reform, Mr. Xi's administration is losing control of the plot.