01 September 2009

China's Economy Continues to Distort

SOEs are the dinosaurs of China's economy, and it is time that evolution began to consider extinction. _ChinaStakes
China's economic recovery is not sustainable, according to Andy Xie, former Asian economist for Morgan Stanley. One of the main reasons is the inability of the CCP to let go of all the corrupt and wasteful state owned enterprises (SOEs), which distort the entire economy.
Even in areas with developed private economy, the government has chosen to develop SOEs first, especially to cooperate with large central-enterprises, to maintain economic growth and high GDP. Taizhou City, for instance, in eastern Zhejiang Province, is introducing an SOE petrochemical project in which is being invested 100 billion yuan.

...The current development of SOEs is not conducive to China's economic structural adjustment. It leads to duplication and production surpluses, not only wasting financial resources, but also increasing banks' credit risk. SOEs tend to lack any sense of responsibility for society and disrupt the normal market order, as with the "enclosure movement" in real estate. With the advantage of dominance in finance and state favor, they exacerbate unequal social distribution. Their ill-use of economic resources and driving out of private investment inhibit employment growth. SOEs are the dinosaurs of China's economy, and it is time that evolution began to consider extinction. _Source_via_nakedcapitalism_


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Blogger kurt9 said...

The SOE's are far less prevalent today than they were in 15-20 years ago. SOE's employed 35 million people in 1994. Today, its around 6 million and still declining. This problem will be gone in another 5 years.

Also, consider that China's working age population peaks in the next 3 years, then slowly declines. A stagnant work force make economic liberalization easier because it does not create as much short-term unemployment as in the case of a country with a rapidly growing workforce, like India.

Tuesday, 01 September, 2009  
Blogger neil craig said...

I doubt it will be gone in 5 years but it is not new & has been declining. The lesson is that China's unusual 10% annual growth over the last 30 years is not because they are run particularly well but because western countries are run so incredibly badly. I am certain that any western country that really tried could achieve that growth - look at sleepy Ireland achieving 7% simply by cutting corporation tax & building regulations.

Wednesday, 02 September, 2009  
Blogger al fin said...

It is true that the SOEs have consolidated and been reduced in numbers and employees. 30 million SOE workers were laid off by 2004 and probably a lot more laid off more recently.

The problem with measuring the impact of SOEs is that it is not employment that matters so much as investment. If investment is being diverted from the productive sector to the SOE sector, the economy takes a long term hit.

According to my numbers, SOEs employed well over 100 million by as late as 1996.


Neil: You are right that western governments have done almost everything they can to shackle the private markets and to slow economic growth.

Carbon caps and taxes are just the latest in a long line of subversive economic measures put in place by western governments.

Anything that reduces competition and innovation -- which is a good description for almost all government policies.

Wednesday, 02 September, 2009  

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