Actually, MSM, China's an Economic Mess

America’s movers and shakers can’t seem to stop ogling Chinese authoritarian chic. While few would defend China’s repressive political system, numerous politicians, business executives, and pundits bow before China’s state-directed capitalism, equating authoritarianism with efficiency and ruthlessness with enlightenment.

At the heart of this ogling lies an admiration for Beijing’s ability to undertake large projects far more quickly than America’s democratic gridlock would ever allow. In reality, Chinese central economic planning generates massive inefficiencies and imposes drastic human costs. Below is merely the short list.


As a candidate in the 2008 presidential election, Senator Barack Obama bemoaned the crumbling infrastructure of the United States and noted that China’s state-directed infrastructure spending had produced ports, trains, and airports that were “vastly the superior.” Since then, Westerners have consistently pointed to the rapid construction of China’s high-speed rail system, now the most extensive in the world, as Exhibit A of China’s infrastructure prowess.

In fact, going high-speed in China has highlighted endemic corruption and created unhappy customers. In February, Liu Zhijun, China’s minister of railways and architect of the country’s $300 billion high-speed rail network, was fired and arrested amid accusations of wheeling and dealing in bribes of $155 million -- and keeping 18 mistresses.

Since then, concerns about shoddy construction and safety have surfaced.

China’s state media once trumpeted the trains’ top speed of 210-236 mph as the fastest in the world, but the trains were never designed to run above 186 mph. In April, they were slowed accordingly., the website of China’s leading business and finance publication, reports that the “high-speed bubble” was all a “naked, systemic lie,” concocted and fanned by the Railways Ministry.

Meanwhile, most Chinese citizens cannot afford to ride the shiny new trains and have opted instead to pack into buses for their long-distance travel.

State Ownership

Infrastructure is not the only aspect of Chinese government planning for which Westerners get starry-eyed. Senior business executives, in particular, can get downright obsequious about the superiority of China’s government leadership. Writing in the Wall Street Journal on July 9, Robert Herbold -- a retired COO of Microsoft -- cited Chinese bureaucrats’ penchant for reciting the goals of China’s new five-year plan as evidence of such superiority.

But Chinese government planning hardly equals a winning investment. According to a recent report by the Unirule Institute of Economics, an independent think tank in Beijing, the average return on equity of state-owned industrial enterprises in China was much lower than that of their non-state counterparts between 2001 and 2009.

When preferential government subsidies (such as free land and cheap loans) for the state firms are factored in, the real return on equity registers at an embarrassing -1.47%.

Moreover, 70% of all net profits made by China’s centrally owned enterprises in 2009 are derived from merely ten companies that have been bestowed heavy market advantages by the state. The unflattering flipside, observes Zhang Jialin of the Hoover Institution, is that a vast majority of the remaining state-owned companies are poorly managed or suffer from overcapacity.

Climate Change

But even inconvenient numbers cannot deter New York Times columnist Thomas Friedman from extolling the “enlightened” leadership of Chinese autocrats for imposing “the politically difficult but critically important policies needed” to embrace green technology and combat climate change.

Yet where gargantuan government investment has created rapid growth in China’s renewable energy industry, it has also resulted in bottlenecks and overcapacity. For instance, China now boasts the world’s largest wind capacity -- but approximately one-third of its wind farms stand idle at any given time, unable to connect to the electricity grid.

In addition, Chinese leaders never hesitate to convey the callousness of their approach. Zhao Baige, vice minister of China’s National Population and Family Planning Commission, has eagerly trotted out the country’s one-child policy as an example of the bold and swift action on climate change that China has bequeathed to the world. In December 2009, Zhao noted that China witnessed 400 million fewer births between 1978 and 2007, which “converts into a reduction of 1.83 billion tons of carbon dioxide emission … per annum.”