The Midget: Beijing

Tomorrow morning in the city of Tianjin, a city immediately outside Beijing, a brain-trust of financial executives coalesce in a Davos style conference organized by the World Economic Forum to discuss the current state of China’s economy.  They could all stay home and read the intelligence brief organized by The McKinsey Global Institute. McKinsey’s best minds spent the last several years studying the Chinese political economy, and you’ll be happy to acknowledge that Chinese authorities aren’t capable of transforming its productive capacity out of the middle income trap.  McKinsey outlined why.

China does need to shift from brawn to brain, but to do that, its political authorities need to embrace a social, political revolution that will dethrone the Han masters that run Beijing.  Wait it get’s worse.  The report analyzed that nearly 80% of all economic progress in the Chinese economy is generated in one single industry:  finance.  Did you get that.  GSE (government sponsored enterprises) or state financed businesses generate guaranteed profits by the regulatory state.  The whopper is this: over 50% of China’s top 20 businesses register annual losses.

The dirty little secret of China Inc. is out.

China’s labor productivity remains barely 15% of the rest of the industrial world, despite over two decades of improvement, the Han masters in Beijing cannot function in world driven by market signals.  Like the Saudi’s, the Han masters in Beijing rig everything.  And still they fail.

Let’s recap.  An economy biased toward state owned enterprises of heavy manufacturing suffers from over investment and underperformance; yet still, the boys in Beijing double down.  We should anticipate a trend that will end badly for Beijing:  a permanent debt-bomb.

Why?

No industry, no business in China can go bankrupt.  The subsidizes, cheap loans are endless.  Why?  Because there is no competition.  China isn’t operating in a market.

The next great Chinese revolution will be led by an indigenous Adam Smith.

The McKinsey Global Institute Report:  China

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About William Holland

Systematic Theologian/International Relations
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One Response to The Midget: Beijing

  1. Pingback: The Midget: Beijing - Affluent InvestorAffluent Investor

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