Faced with a global economic collapse, China’s government has massively increased support for State-run enterprises – from the New York Times:
…whether in the coal-rich regions of Shanxi Province, the steel mills of the northern industrial heartland, or the airlines flying overhead, it is often China’s state-run companies that are on the march.
As the Chinese government has grown richer — and more worried about sustaining its high-octane growth — it has pumped public money into companies that it expects to upgrade the industrial base and employ more people. The beneficiaries are state-owned interests that many analysts had assumed would gradually wither away in the face of private-sector competition…
Later in the article the Chinese Prime Minister is quoted as saying China’s socialist economy allows it to better allocate resources – it is as if the 20th century never happened. What is really going on here is two-fold:
1. With the private economy around the world suffering, China’s government is worried that the private sector will not be able to keep China’s people sufficiently employed, thus risking a rising tide of unemployment destabilizing to China’s oligarchic dictatorship.
2. China’s corrupt oligarchy likes being in charge and thus when really faced with assigning control to outsiders or keeping themselves on the gravy train, they did what comes natural to a corrupt oligarchy.
This will be an utter disaster for China. China’s State-run enterprises routinely operate at a loss and are already burdened with debts they cannot repay…and which no one really asks them to repay because to do so means going up against powerful figures in the Chinese government. They are throwing good money after bad – and incidentally starving China’s private economy of the funding it will need now that China’s stimulus is unwinding and global demand for Chinese goods remains flat.
China, like Stalin’s Russia, Mussolini’s Italy or Hitler’s Germany can get away with this for a while – and even convince outside observers that things are going swell (this is especially true for those outside observers heavily invested in China and thus determined to paint the brightest picture possible of Chinese prospects), but the price has to be paid. You can’t keep shoveling money in to a government black hole for ever. Eventually, the books have to balance. Unless China’s government does something no government has ever been able to do – run a major industrial enterprise at a profit over a sustained period of time – it will all collapse back on itself as mounting losses and bad loans take the Chinese treasury down.
Anyone who remains invested in China is a complete fool – they are heading for a fall, and no one knows what they will do when the crash comes.
UPDATE: Rumor Mill – Governor of the People’s Bank of China flees to the United States?
Blogs For Victory 