The Chinese Socialist Experiment Begins to Unravel

It appears that the Chinese Socialist / Communist Experiment is beginning to rapidly unravel. From AP:

Rising prices are a political threat to China’s communist leaders and they have declared taming inflation their priority. But they suffered a setback in March, when a double-digit jump in food costs pushed inflation to a 32-month high of 5.4 percent. That was despite four interest rate hikes since October, curbs on bank lending and government orders to producers to hold down price increases.

Logically, this means price controls…

Attempts at price controls, subsidies for the poor and orders to local leaders to guarantee adequate vegetable supplies have had mixed results.

But price controls have nasty side effects…

In the southeast, export regions are suffering power shortages that force factories to suspend production every other day. Power companies are squeezed between low state-set rates and high gas and coal prices, so they have avoided adding more generating capacity despite double-digit annual increases in demand.

Enough said, right? But My favorite part is where the government promises to “manage” vegetable prices…

“I think you should have confidence in the Chinese government’s capability in managing vegetable prices well,” said a deputy commerce minister, Fu Ziying, at a news conference this week. He gave no time frame for when inflation might subside.

Centrally managing an economy is a futile and destructive exercise. Price controls of any kind inevitably lead to shortages. The Chinese are now taking a step backwards on their road to a Capitalist economic model.

Unfortunately, when you take a step backwards out of a high speed train going 400km per hour (which is what the Chinese economy essentially is), you can imagine that the results are not pretty. Unfortunately, the Chinese authorities are about to push the Chinese People off of the train.

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