Well two things: 1 - The extent to which China has "loosened economic restrictions", as you put it, is greatly exaggerated. Wu Bangguo, the #2 man in the Politburo (behind President Hu) announced recently that "We have made a solemn declaration that we will not employ a system of multiple parties holding office in rotation; diversify our guiding thought; separate executive, legislative and judicial powers; use a bicameral or federal system; or carry out privatisation".
I note in particular the last point.
Earlier, in 2006, the State Council (equivalent to the US Cabinet, although more influential) made the following policy statement:
"T]he State should solely own, or have a majority share in, enterprises engaged in power generation and distribution, oil, petrochemicals and natural gas, telecom and armaments. The State must also have a controlling stake in the coal, aviation, and shipping industries. Central SOEs should also become heavyweights in sectors including machinery, automobiles, IT, construction, iron and steel, and non-ferrous metals."
This list leaves out other sectors which are reserved for state ownership: banking, insurance, finance, media, and railways, among others.
So what I'm saying is the new leadership which rose to power after the 16th Party Congress held in late 2002 (Primarily Hu, but also Wen Jiabao) has reversed course on the full throttle scheme of economic liberalization that had been going on under Jiang Zemin, the previous "paramount leader". Now, Jiang clung to his positions of influence a bit and Hu didn't really seize full control of the top leadership until a few years later, and that's when we see an openly stated policy of expanding the state-owned sector and putting a stop to further privatization.
But this point is not as important as my second point.
China is a developing country, and considers itself to be in a 'primary stage' of socialism. It is not understood that socialism is built in stages. This is ignored and then critics accuse China of being 'capitalist'.
What the primary stage means is that Chinese productive forces are at a low level of development. And as is clearly known from Marx, socialism cannot fully mature under such conditions. You cannot end exploitation and achieve social justice without highly developed productive forces. Economic liberalization, much like under Lenin during the NEP, is an attempt to achieve economic development before moving to a more mature stage of socialism. While China has made great strides, it still has problems due to a very large population, a weak economic base, and great disparities between city and country and between various regions.
The point being that to develop a backward country of more than one billion people into a highly developed, prosperous, and harmonious society, especially under the external pressures it is under, is no easy task. China is doing what it takes to develop, under the competent guidance of the party.
Just imagine what China would be like if the most profitable sectors of its economy were controlled by capitalists and capitalist parties, seeking only profit for themselves, ruled the country? I can't even fathom it. It would be a disaster.