I’m always a little surprised to hear free market economists waxing lyrical about China. True, China has taken some extraordinary steps forward since they began to liberalize their economy, and many people have been lifted out of poverty as a result. But we should not lose sight of the fact that China is still dominated by the state and run by central planners, and that all of the failings of socialism remain present and correct. Indeed, there is a strong case for arguing that much of what we are witnessing in China now is not real growth at all, but rather a bubble driven by easy credit, with resources being misallocated on a grand scale.
Johan Norberg made this point in a recent Spectator article:
Absurdly, China’s money supply is now larger than America’s, even though its economy is a third of the size. We can see the results of this stimulus in stock market prices and in new roads, bridges and housing complexes all over the country.
Not that anyone wants to travel on those roads or live in those buildings. In August, China’s largest energy company reported that an extraordinary 65.4 million residences have not consumed any electricity in the last six months — a fairly big clue that they lie empty. There are now entire ghost towns, like new Ordos in northern China, where tens of thousands of buildings erected from scratch stand empty. And yet property prices in Ordos have doubled over three years. It’s not popular demand, it’s pure speculation. In some quarters, China is being spoken of as the last, best hope for the world economy. But it might be the next bubble to pop.
Property prices are still spiking up. People are still speculating. Ships with dirt and rocks still head for Chinese ports. The capital spending boom goes on. It looks like growth. But it is zombie growth. People build bridges to nowhere rather than working for profit-making enterprises. Concrete is used to put up cities where no one lives. Savings that might have been used to start a new bank instead prop up an old one. Japan has been doing it for years. Encouraged by government miscues in the 1980s, private industry created Japan's zombies. Then, after the bubble burst, the government kept them alive. They've been sucking blood from the living ever since.
I’m no China expert. I don’t know how big the bubble is, and I don’t know when it will burst. But I do know socialism doesn’t work, and that you can’t buck the market forever. Somewhere down the line, central planning always ends in tears.