Competition-fueled growth propelled China's emergence as the world's second-largest economy. But it is unsustainable. The imperative now is to rebalance competition to address the negative externalities of State and market activities that harm citizens' interests.

The central government's recent removal of certain judicial powers from local governments, thereby strengthening protection of property rights, is an important step in this direction. But it is not enough. Enabling the market to drive resource allocation, while ensuring a level playing field for all participants, will require the establishment of clear competition principles, possibly supported by a powerful "competition commission".

No competition can work without clear, fair rules. That is the real challenge facing China's leaders today. If they succeed, a high-income China will be only a matter of time.

Andrew Sheng is distinguished fellow at the Fung Global Institute and a member of the UNEP Advisory Council on Sustainable Finance, and Xiao Geng is director of research at the Fung Global Institute.

Project Syndicate.