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  • 10 - The “Summer of 2021” and the Trajectory of China’s Economic System

  • Edited by Hanming Fang, University of Pennsylvania, Marshall W. Meyer, Wharton School, University of Pennsylvania
  • Book:
    The Arc of the Chinese Economy
    Published online:
    30 October 2025
    Print publication:
    13 November 2025, pp 256-287

  • Summary

    This chapter examines how the events of summer 2021 marked a decisive turning point in China’s economic system. Barry Naughton argues that, while the reform-era system emphasized decentralized decision-making and robust growth incentives, a series of abrupt regulatory actions in 2021 abruptly constrained the private sector and redefined policy objectives. The crackdown – targeting major private enterprises, real estate, and tech giants – catalyzed a shift toward a system where economic decisions are heavily politicized, with competing objectives that dilute growth incentives. This new framework, which prioritizes political and social goals such as common prosperity over pure market efficiency, is expected to reduce productivity and weaken policy credibility. The chapter concludes that the summer of 2021 represents a point of no return, signaling a qualitatively different economic regime that may have lasting negative implications for China’s dynamism and long-term growth.