Friday, March 3

China... Has a Dark Side?

Hat tip: Tyler Cowen at Marginal Revolution.

If you are one of those very knowledgable people who are gung ho on China and can't wait to throw your 401k money into the latest China fund, you may want to take a look at this article by Minxin Pei at Foreign Policy, the mouthpiece for the New World Order establishment types.

Then again, if you've already sent your money to China, you may want to finish your lunch first, because after reading The Dark Side of China’s Rise you may not be able to swallow for an hour or so.

Pei steps past the piles of steaming hype, and takes a realistic look at the "engine of future world growth" to reveal the darker side of this neo-Lenninist state, where monopolies, corruption and one-party rule are the norm.

Behind the glowing headlines are fundamental frailties rooted in the Chinese neo-Leninist state. Unlike Maoism, neo-Leninism blends one-party rule and state control of key sectors of the economy with partial market reforms and an end to self-imposed isolation from the world economy. The Maoist state preached egalitarianism and relied on the loyalty of workers and peasants. The neo-Leninist state practices elitism, draws its support from technocrats, the military, and the police, and co-opts new social elites (professionals and private entrepreneurs) and foreign capital—all vilified under Maoism. Neo-Leninism has rendered the ruling Chinese Communist Party more resilient but has also generated self-destructive forces.

Oh, and I know you don't want to hear about this...
But China’s tentacles are even more securely wrapped around the economy than these figures suggest. First, Beijing continues to own the bulk of capital. In 2003, the state controlled $1.2 trillion worth of capital stock, or 56 percent of the country’s fixed industrial assets. Second, the state remains, as befits a quintessentially Leninist regime, securely in control of the “commanding heights” of the economy: It is either a monopolist or a dominant player in the most important sectors, including financial services, banking, telecommunications, energy, steel, automobiles, natural resources, and transportation. It protects its monopoly profits in these sectors by blocking private domestic firms and foreign companies from entering the market (although in a few sectors, such as steel, telecom, and automobiles, there is competition among state firms). Third, the government maintains tight control over most investment projects through the power to issue long-term bank credit and grant land-use rights.

China’s business cycle is therefore driven by Beijing. Private-sector firms have very limited access to finance or new markets. The state even dominates many ostensibly deregulated sectors, such as the brewing industry, the retail sector, and textiles. Of the 66 publicly traded retailers in the country, only one is private. There are only 40 private firms among the 1,520 Chinese companies listed on domestic and foreign exchanges.

While the rest of the world has been buying into the PR campaign of the Big Red Pig from the Far East, The Moon and the Sixpence is one of the few stalwarts who stand firmly on common sense.

No matter how much lipstick you put on her, she's still just a butt-ugly pig.

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