The Ultimate Crony Capitalist State: China's economy is in serious trouble

Stumble, trip, or fall?

For years at Against Crony Capitalism we wrote about China’s crony capitalism. We called the country (and will continue to call it so long as it is true) the world’s ultimate crony capitalist state. All business in China is ultimately accountable to the Chinese Communist Party. Post-Mao there was hope that the communists would wither away but they didn’t. They became crony capitalists.

Even still there was enough economic freedom (and unbridled spirit in the Chinese people) that the Chinese Miracle bloomed for three decades post-Mao. Growth upon growth upon growth at high levels year in and year out became the norm. Soon China found itself the US’s chief rival. The skylines of Beijing and Shanghai reached to the sky with ever more elaborate skyscrapers putting an exclamation mark on the good times.

Deng Xiaoping even said '“To get rich is glorious”.

This was quite a contrast to Mao who said; “People say that poverty is bad, but in fact poverty is good. The poorer people are, the more revolutionary they are. It is dreadful to imagine a time when everyone will be rich... From a surplus of calories people will have two heads and four legs.” 

So socialist proletarian austerity was out, and western-style prosperity with some property rights (within serious limits) was in.

We all know the story. China became rich.

What is less understood is the degree to which crony capitalism was a cancer eating at the Chinese economy even during this phase of meteoric growth. At first it was unnoticeable. Now it threatens the underpinnings of modern China just as Bejing was primed to walk onto the global stage in truly first tier status.

It is now a very open question whether China as we have come to know it, will in fact have the “Chinese Century” in the 21st century that many felt was inevitable even just a couple of years ago.

In this new set of circumstances one of reactions from Chinese leadership has been to target dissent.

China’s $7 trillion crash masks the really bad news

In recent weeks, the state security ministry has reportedly made clear Beijing is on the lookout for those disseminating negative views on China’s economic and market prospects. This chilling warning not to “denigrate China’s economy” via “false narratives” is Mao Zedong, not Adam Smith. And it raises troubling questions as China’s influence soars.

China’s top intelligence agency is saying the quiet part out loud as it prioritizes “strengthening economic propaganda and public opinion guidance.” The truly disturbing question, though, is what’s written between the lines in bold font.

So stuff reality into the economic toothpaste bottle? Reality and markets do not work like that. Markets need information so that they can clear and remain healthy. Xi and his cohorts are not interested in reality or healthy markets (or specifically long term healthy markets with price discovery), they are interested in quelling unrest among the people and retaining what a good Confucian might call “the mandate of heaven.”