Communist China's huge experiment with capitalism reaches a critical point

The communist party led by Xi Jinping has spent the first two weeks of 2016 demonstrating that it's not ready to let free markets run away from their control. Surprise, surprise!

The Economist has joined the chorus of observers and analysts arguing that China's least bad option now is to close up its capital account again, at least for the time being - until it fixes its financial mess. It also highlights what it calls a crisis of faith apparently hampering Beijing's decisiveness in tackling its extraordinarily difficult and complex transition.

Yes, the PRC's mammoth experiment with capitalism while remaining a communist state has reached a critical point: Xi himself admitted as much in his new year's address to the nation, though that was just before the latest market meltdown. It's unlikely that his or the party leadership's confidence in continued gradual reform and opening has been fundamentally shaken, but they'd better realize that there's now a big gap between shattered international perceptions of China and their own still relatively sanguine attitude, and that this gap is itself becoming a bigger risk to both the Chinese and global economies.

To address this gap demands improved messaging - whether or not it's accompanied by improved transparency. The world at large needs some reassurance from China that its slow-but-steady approach is still the best one. It needs to hear from Beijing itself that the slowdown or even contraction in secondary industry is actually deliberate policy, and that things would already be a lot more dire if tertiary industry weren't in fact growing robustly - despite the fuzziness of services sector GDP statistics.

Then again, perhaps even such cool-headed and balanced Western observers like the Economist are overreacting by betraying their fundamental dogma that the state and the private economy are simply doomed to clash in such a way that one or the other must give, and China's transition has reached a crossroads where this ingrained Western assumption is itself up for grabs - or perhaps exposed as being only partly true, anyway.

So we have a clash of worldviews shaping up with potentially Apocalyptic undertones: the one thing this guarantees is more market volatility.