It is also, though, a reflection of the increased difficulty of running from the centre an economy that is so much bigger than before.
Hence, there is a recognition from the Central Committee, a political body comprising the top leaders of the Chinese Communist Party, that the market mechanism needs to play a greater role, especially in the allocation of land, labour, capital and technology. Although state-owned enterprises still play an important role too.
In the past, people within China had a limited choice as to what to do with their money: place it in bank deposits, where rates were low; invest in equities, where corporate governance might be unclear; or buy property, where prices were always seen as heading higher.
Some may have taken money out of the country. Now the property bubble may have burst.
At the same time, measures are ongoing to curb corruption and improve governance. And, importantly, there is a desire to have deeper and broader capital markets.
Financial market development is seen as vital, including developing insurance markets and a more effective social safety net.
Importantly, the crisis triggered by the war in Ukraine has seen China’s renminbi viewed as a safe-haven currency. This is the first time this has happened and is a potential game changer.
It fits with the desire to internationalise the renminbi, although opening up fully the capital account still is some way off.
If the renminbi is seen as a store of value – underpinned by its central bank keeping inflation in check – then this will reinforce its attraction as a medium of exchange.
We may also be in the early stages of the great decoupling. China is keen on a multilateral system that is not dependent upon the dollar, and in which its own currency as well as others play a more important role.
The west’s decision to limit the Russian central bank’s access to its foreign exchange reserves was, like crossing the Rubicon, significant. China, like many other countries, may be wary of a system driven by western politics.
This coincides with the race to develop new global central bank digital currencies.
China’s e-CNY digital currency, already being piloted, is well advanced, while at home it needs to compete with WeChat Pay and Alipay.
Differentiation, divergence and decoupling encapsulate the present environment.
China’s economy is at a different stage of the cycle. Thus, its performance and policy may diverge from the west.
And the great decoupling towards a new financial architecture has already begun, in which China will play a larger role.
