Have Wages Of Chinese Central Planning Hit Home?

Central planning has been shown to be a failure, both by the economists in theory, and by the collapse of USSR and allies in practice. But China has always been thought to be an exception. Of course one reason has been the patriotism of its ruling elite. They seem to do what benefits China, at any given moment, and for that they are ready to junk their ideology, or at least economic component of it.

But it seems that even their patriotism can’t overcome the inherent flaw of Central planning. If reports are to be believed, its economy is in trouble.

” Lombard Street calculates that 2014, “real” (after inflation) annual GDP growth averaged 4.4%, versus the official government rate of 7.3%. But more foreboding for the Middle Kingdom, they see economic growth sequentially collapsing. Choyleva estimates that China’s third quarter fell to 4% and fourth quarter growth plummeted to 1.7%.

Lombard Street was the first to understand that the Chinese government responded to the 2008 to 2009 financial crisis with a monetary stimulus that, adjusted for the size of economy, was twice as big as the U.S. stimulus and injected twice as fast. The result was an epic economic boom in Chinese exports, real-estate prices and wage rates. For commodity-based economies, China’s demand created a boom that drove the commodity price index including energy, materials, food, and raw materials up by 50%.

While most analysts were praising China as an “Economic Miracle,” Choyleva warned 18 months ago that China was already in an economic “hard landing.” She argued China’s artificially driven “success” came at the cost of rising labor and manufacturing costs. With higher China costs the “new normal,” multinational corporations began skipping the Middle Kingdom for cheaper pastures such as Malaysia and Vietnam.” (from the article)

 

Read the whole article here.