Jack Ma, the schoolteacher who co-founded Alibaba Group, so likes attention that in 2019 in front of 60,000 employees he donned oversized purple-tinged glasses, a studded leather jacket with chains and a braided long-haired wig, grabbed an orange electric guitar as a prop, and sang pop songs to mark the e-commerce giant’s 20th birthday. Yet within 13 months the limelight-seeking business icon disappeared.

Ma vanished ostensibly for criticising Chinese banking regulators. The real reason, though, was his outsized profile bristled a dictatorship that brooks no rivals in popularity or anything else. Not only was Ma unsighted for more than 12 months, authorities suspended the initial public offering of Ant Financial and opened a probe into this Alibaba unit that owns Alipay, a phone-based payments system. The quasi-house arrest of Ma and the attack on Alibaba rate as Beijing’s biggest crackdown on the private sector, an onslaught that extended from platforms to education, gaming and property and snared other executives.

The assault on private enterprise was one of Beijing’s moves of recent years that reveal how much the regime of President Xi Jinping prioritises political control over economic advancement. Other steps were favouring the state sector, centralising decision making, directing investment to green exports, all the while injecting fiscal stimulus that inflated a property bubble. A key consideration was to keep GDP growth at levels the government thought bolstered its legitimacy.

It seems, however, that Beijing has magnified the economic damage wrought by its zero-Covid policy. Debt is approaching 300 per cent of GDP. The worst deflation in 25 years has taken hold. Exports are sagging. The liquidation of Evergrande China is likely to worsen the property slump. The bank sector is strained. An ageing and shrinking population saps at demand, as do declining wages and high youth unemployment. ‘Wolf-warrior’ diplomacy and state-directed investment have prompted the West to impede Chinese imports and ban technology sharing. The swallowing of Hong Kong has deterred foreign investment. Official economic growth targets of 5 per cent per annum look unattainable without rigging the statistics.

Beijing’s concerns about the economy were evident when the policy-setting Central Economic Work Conference prioritised growth at its annual gathering in December. Central to the government’s plans are efforts to boost the role domestic consumption plays in driving the economy. This conference met days after China’s cabinet issued a 12-year plan to lift consumer spending.

Beijing has talked about shifting to the consumption-driven model of advanced economies since Prime Minister Wen Jiabao in 2007 said China’s export and investment-led model was causing ‘unsteady, unbalanced, uncoordinated and unsustainable’ development. The rebalancing would require boosting consumption from about 35 per cent of output to above 50 per cent, essentially by creating a middle class that is willing to spend. Yet last year investment was 43 per cent of GDP, about 3 percentage points higher than when Wen spoke 17 years ago, and more than double the ratio in advanced economies.

The pivot from investment to consumption requires China to boost wages and lift social spending (to discourage saving) and correct the deliberate under-pricing of the key ingredients of economic growth that powered the old model, especially the exchange rate and interest rates. The switch has floundered – and likely always will – because raising wages makes Chinese labour less competitive, and unleashing market forces clashes with the ideology and vested interests of the Communist party of China. Under the country’s Leninist system where dissent is crushed and individual protections are absent, the party is paramount.

Take the dilemma the party faces in abandoning the key mispricing behind China’s export success; the policy to keep the yuan artificially low (via a ‘managed float’ after the peg to the US dollar ended in 2005). For the Chinese, the low-yuan policy reduces their living standards by making imports more expensive. China’s leaders, in effect, are offering global shoppers bargains at the expense of their compatriots. But a stronger yuan would hurt state- and military-owned companies that export or compete against imports. Many of these businesses provide jobs and perks for party members while the military safeguards the party’s power.

Another key mispricing behind China’s success is cheap money for government-aligned private businesses, state enterprises and local governments. Over the past four decades, China’s savers have subsidised the country’s property and investment drives because authorities have set interest rates on consumer bank accounts artificially low. At the same time, officials have applied capital controls on households to ensure their savings funnel to banks (and not, say, abroad). These controls have led to poorer consumers, flabby state companies, unviable projects, vulnerable banks, wasteful local governments and a shadow financial system where private companies pay exorbitant interest rates. But liberalise interest rates and state banks, state companies and local governments lose.

The mispricings of land and inputs such as power and water present similar dilemmas for the party. The cheap acquisition of land has garnered a huge shift in wealth from China’s masses to local governments, (corrupt) officials and developers. Consumers subsidise inputs to the benefit of companies and other large party-aligned users.

China’s leaders no doubt understand that allowing market-set pricing and unleashing the private sector would hurt their interests. Beijing thus has no answer for the country’s economic descent into Japanese-style lost decades but to double-down on the old model. But rising government debt limits state-directed investment and curtails fiscal handouts to a population that is reluctant to spend anyway. The future is one where China’s economy is likely to be floundering.

Some credit to the government because it has reduced some mispricings – interest rates have been partially liberalised and the yuan moves more within its managed float. But these steps didn’t jeopardise the party’s control. Fixes that act against the party’s self-interest are needed now to ensure sustainable economic growth.

Pity that Xi is smothering the limited embrace of market forces and the private sector that drove China’s climb out of poverty and backwardness.

By doing so, he is inflicting the same financial hit on China’s masses that he sanctioned on Alibaba’s Ma.