Beijing's Predicament.

• Author: Chang, Gordon G.
• Position: President Xi Jinping's economic policy reverts China to state control - Essay

This December marks the fortieth anniversary of the Communist Party's historic Third Plenum of the 11th Central Committee--considered the beginning of China's so-called "reform era." Reform, as everyone knows, has propelled China to phenomenal heights.

Yet the country has reached its high point. China's political leadership, led by the willful Xi Jinping, is now repudiating the very reformist policies that accounted for the country's astonishing rise.

And as China approaches the landmark anniversary, many Chinese are swiftly moving from supreme self-confidence to deep anxiety. Xi may remain sure of the regressive and assertive course he has set, but if so, he is alone.

Not long ago, the Chinese people had every reason to be hopeful. China, most believed, would regain its position atop the international system. Many talked of this era as "The Chinese Century," and China's dominance was considered "inevitable," "inexorable" and "indisputable."

Xi's signature motto, "the Chinese Dream" of "the great rejuvenation of the Chinese nation," was repeated incessantly in official circles, and in Beijing there was only one possible future for the country. In the words of the official Xinhua News Agency last October, "China is set to regain its might and re-ascend to the top of the world." Hubris was everywhere. As Arthur Waldron of the University of Pennsylvania told me in March, referring to Chinese leaders, "They actually believe they are the strongest country in the history of the world."

China has always been big, but it has at times, due to miserable governance, been weak. Four decades ago at the Party's historic Third Plenum, Deng Xiaoping overpowered Maoist stalwarts and won adoption of his plan of gaige kaifang, or "reform and opening up." That approach unleashed the entrepreneurship, energy and enthusiasm that more than a generation of Maoism had not been able to eliminate. Deng then had to periodically overcome resistance in the Party to economic liberalization, but China's course was set after his 1992 "Southern Tour"--a trip through Shanghai and cities in Guangdong province and a sign economic reformers had finally won out.

Deng's immediate successor, Jiang Zemin, was also in the mold of a reformer. Zhu Rongji, Jiang's hard-nosed premier, forced the breakup of state-owned enterprises and negotiated China's entry into global commerce with the December 2001 accession to the World Trade Organization. Jiang and Zhu also ensured that China's new financial markets developed and flourished.

Hu Jintao, Jiang's successor, presided over a decade of economic growth but little structural change. His rule, beginning in 2002, is now correctly considered a time of missed opportunity. Observers thought Hu's weak political position hampered reform efforts because, among other reasons, he was not able to overcome the determined opposition of interests that had been able to enrich and entrench themselves in the early years of the reform period.

Optimists rejoiced, therefore, that the Communist Party's next general secretary, Xi Jinping, promised to be a far stronger leader. The general narrative was that the new supremo would be able to implement change, and many observers declared the Third Plenum of the 18th Central Committee of November 2013 to be another seminal event. At its conclusion, the Party announced structural reforms and, in attention-grabbing language, declared that henceforth the market would play a "decisive role" in the allocation of resources. "Decisive," according to an official source after the Plenum, meant "other forces can influence and guide resource allocation, but the decider is no other than the market."

Forget the market. The decider in the era of Xi Jinping has proven to be Xi himself. "The culprit is massive state intervention," wrote Scott Kennedy of the Washington, D.C.-based Center for Strategic and International Studies last year. Throughout Xi's tenure, the state has, as is so often said, "advanced" and the market "retreated." Xi, believing in the primacy of the Party and the power of the state, has forced China back to something Mao would be familiar with.

Xi, for instance, has been busy recombining already large state enterprises back into dominant market players and, in a few cases, formal state monopolies. He has increased state subsidies to favored participants and has tightened already strict capital controls, often enforcing unannounced rules.

Xi has also placed a new emphasis on industrial policy. Most notorious among these is his Made in China 2025 initiative, announced in 2015. CM2025, as it is known in China, aims to make the country nearly self-sufficient in, with the addition of 5G wireless communications, eleven crucial industries, including, aircraft, robotics, electric vehicles, information technology, medical products and semiconductors.

At the same time, Xi has been closing off China's markets to foreign companies with discriminatory law enforcement actions, state media-promoted boycotts and legislation, like the Cybersecurity...