China Pathfinder: Quarter 4 2021 update

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PATHFINDER: Q4 2021 UPDATE

China Pathfinder: Quarter 4 2021 Update China Pathfinder is a multiyear initiative from the Atlantic Council’s GeoEconomics Center and Rhodium Group to measure China’s system relative to advanced market economies in six areas: financial system development, market competition, modern innovation system, trade openness, direct investment openness, and portfolio investment openness. To explore our inaugural data visualization and read our 2021 annual report, please visit https://chinapathfinder.org/.

JANUARY 2022

by Nargiza Salidjanova with contributions from Rachel Lietzow and Daniel H. Rosen

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hina moved farther from market economy norms in the fourth quarter of 2021. The real estate sector continued to dominate the headlines as Evergrande, the country’s largest property developer, finally defaulted, along with peers Kaisa, Sinic Holdings, Fantasia, and Modern Land. Meanwhile, the government’s regulatory crackdown intensified, culminating in ride-hailing giant Didi’s forced delisting from the New York Stock Exchange. The move may herald a broader unwinding of foreign listings, particularly for data-heavy Chinese companies. While VC flows to China’s tech startups showed recovery from a low in 2020, the main targets for this investment were hardware technology sectors favored by Beijing. With expectations for a slowdown in 2022 mounting, China’s leaders dropped their fiscal restraint and promised new stimulus at their year-end Central Economic Work Conference (CEWC).

Quarterly Assessment and Outlook

The Bottom Line: In Q4 2021, Chinese authorities were active in four of the six economic clusters that make up the China Pathfinder analytical framework: financial system development, competition policy, innovation, and portfolio investment openness. There were fewer developments in the direct investment and trade clusters. In assessing whether China’s economic system moved toward or away from market economy norms in this quarter, our analysis shows a primarily negative shift.

FIGURE 1 Q4 Policy Heatmap: Did China move closer to or farther from market economy norms?

FARTHER

Financial System Development

NO CHANGE

Trade Openness

FARTHER

Market Competition

NO CHANGE

Direct Investment Openness

MIXED

Modern Innovation System

FARTHER

Portfolio Openness

Source: China Pathfinder. A “mixed” evaluation means that the cluster has seen significant policies that indicate movement closer to and farther from market economy norms. A “no change” evaluation means that the cluster has not seen any policies that significantly impact China’s overall movement with respect to market economy norms. For a closer breakdown of each cluster, visit https://chinapathfinder.org/.

Figure 1 reflects the direction of China’s policy activity in the domestic financial system, market competition, and innovation system, as well

as policies that impact trade, direct investment, and portfolio investment openness. This heatmap is derived from in-house policy tracking that weighs and evaluates the impact of Chinese policies in Q4. Actions are evaluated based on their systemic importance to China’s development path toward or away from market economy norms. The assessment of a policy’s importance incorporates top-level political signaling with regard to the government’s priorities, the authority of the issuing and implementing bodies in the Chinese government hierarchy, and the impact of the policy on China’s economy.

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