China's State Capitalism Trap

To the rest of the world, China looks unstoppable. Since 1990 its growth rate has rarely dropped below 8 percent, and output has tripled in the last decade. But at a breakfast meeting during the World Economic Forum, several experts on China said one of the country’s greatest assets in its sprint to power—state capitalism—could soon sap its strength.

China’s most powerful companies, including China Mobile, with 600 million customers, and energy giants Sinopec and PetroChina, have substantial government ownership. Advocates of state capitalism say it combines the best of both worlds: the entrepreneurial spirit of the private sector along with the stability that comes from government backing. Critics at the Davos breakfast, sponsored by Hong Kong-based Caixin Media, countered that state capitalism is inefficient, unfair, and can eventually breed the volatility it’s intended to suppress.