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China tightens grip on market but can't stop private sector's rise: Edward Tse

Aaron Task
Editor in Chief

China's stock market crash has been halted -- at least for the moment -- but the government's response with 'overwhelming force' has raised questions about the Communist Party's commitment to reforming China's economy. Some have even questioned whether the government reaction is hurting the credibility of the ruling party and President Xi Jingping, who in 2013 famously declared an intention to let the market play a "decisive" role in China's economy.

Some have even go so far as to declare that "the government’s muddled response [to the selloff] has raised questions about Mr. Xi’s authority and judgment," as The New York Times declared. "Across China, many of the millions of middle-class investors have been asking why the party and the government talked up the market in the months leading up to the recent plunge, and then bumbled in their efforts to prevent the rout."

That is "a little overreaction," says Edward Tse, founder and CEO of Gao Feng Advisory Group, former Chairman for Greater China at Booz & Co and author of, most recently, China's Disruptors. "The whole process is a big experiment for the Chinese government who have not seen this kind of crash. They're very inexperienced...trying different things to rectify the market. In the process they did some good, some bad."

The key question for Tse is whether the market slide and the government's ham-fisted response will slow China's reformation toward an economy driven by the private vs. public sector.

There will be some short-term impact, Tse admits, most notably the ban on IPOs restricting access to capital for some up-and-coming firms. But the long-term story remains intact, he says.

"China's entrepreneurs will be the ones driving the nation forward in the coming decades," Tse writes, noting total revenues for China's state-owned industrial companies rose roughly sixfold from 2000 to 2013 vs. an increase of 18 times for those in the private sector.

So what companies does Tse see as having the greatest potential to "disrupt" the global economy? Watch the accompanying video to find out.











Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at atask@yahoo-inc.com.