Is Communist China overextended? China’s “command and control” economy – much like the former Soviet Union’s – suffers structural flaws. They stem from centralized decision-making, in contrast to capitalism, which leaves most decisions to citizens. Contrary to rosy pictures and leftist efforts to centralize the US, Communist China is stumbling. Simple, but true.
Nobel-prize winning economist Milton Friedman wrote: “A major source of objection to a free economy is precisely that it gives people what they want instead of what a particular group thinks they ought to want,” and “underlying most arguments against the free market is a lack of belief … in freedom itself.” That would be China.
Adam Smith, the 18th-century economist who wrote “Wealth of Nations,” gave us the best metaphor for capitalism. An “invisible hand” – or unseen forces – guide free people in a free economy to their best social benefit. The contrast is communism’s iron fist.
History proves millions of freely made decisions by millions of free people deliver a stunning outcome – supply and demand balance, prices and trade flow, minimal intervention required.
While regulation of trade, averting monopolies, modest expenditures for the common good, laws for ordered liberty, security, and correcting irregularities modulate trade, people – not governments – are best left consuming, producing, investing, saving, and correcting.
That is the difference between a free economy and command-and-control communism; the former leaves most decisions to individuals, latter aggregates power and dictates decisions.
All this may seem like theory, but theory – in practice – has consequences. While China can centrally dictate economic changes, they can also shut down whole cities, demand anything of anyone, surveil, imprison, prosecute, reeducate, limit births, force abortions, harvest organs, suppress speech, religion, and all human rights – and do.
By contrast, a free nation understands liberty resides with the People, not as a collective but as individuals, each with sacred rights and duties protected by limited government. In other words, minimizing government intrusion maximizes social good, even if a “safety net” is important.
This brings us to China – now. Few are saying so, but trouble is afoot in that dragon’s lair. Their economy has grown for decades, chiefly because Western nations imagined more economic freedom – trade preferences, chances to catch-up – would produce political freedom.
The sad truth is – it did not. Instead, China took the West’s money – trade preferences, indulgences, interdependence – with impunity and ran.
While suppressing individual liberties, they modernized their military, extorted smaller countries, developed space weapons, artificial islands, a larger navy, more ballistic missiles, stole intellectual property, pushed cyber espionage, and now – want “global dominance.”
All this is disturbing, why President Trump said: “enough” began seeking accountability – even before the Wuhan virus spread globally. He focused on rebalancing trade, even terms, fairness.
Interestingly, just as Ronald Reagan began “truth-speaking” about the Soviet Union – and those truths echoed – Trump’s truths echo.
But today – if you look closely – Communist China’s command-and-control economy is stumbling.
First, since 2008, they have assumed mass debt – from 150 percent of GDP to 290 percent. While the US is leveraged, China lacks the flexibility of open markets, which naturally assess, price, buy, sell, inflate, deflate, modulate, redirect capital, and resolve. See, e.g., These charts show the dramatic increase in China’s debt.
Second, everything China produces, everything they export, and meeting the needs of their large, suppressed population – depends on energy. China is failing at energy. While long-term trends are elusive, command-and-control economies fail because they cannot manage all decisions from the center. In China’s case, they cannot replace billions of decisions by 1.4 billion of people, accurately matching supply and demand, or even vaguely match preferences to production.
Thus, we are seeing a Chinese economy skid, miss gears, grind through a mismatch of supply and demand, not least in energy. Media – left and right – are beginning to see skid marks. Even CNN reports “China’s manufacturing industries are in trouble,” as The Guardian reports: “China’s factory activity has shrunk unexpectedly amid curbs on electricity use and rising prices for commodities and parts, raising more concerns about the state of the world’s second-biggest economy.” See, It’s official. China’s manufacturing industry is in trouble; China’s factory activity in shock slowdown as energy crisis hits home.
Often prescient, The Economist reports “the latest shock to China’s economy” is “power shortages,” as “at least 19 provinces have suffered power cuts in recent weeks.” See, The latest shock to China’s economy: power shortages.
The Business Insider reports Chinese restrictions on property and energy, debt and defaults, mismanaged coal and natural gas production, imperil growth. See Evergrande and energy shortages are shaking China’s economy. Here are the most exposed countries.. Even the latest Foreign Affairs predicts “the end of China’s rise.” See The End of China’s Rise.
What are the implications? Will China’s high debt and energy weakness have political effects? Could disaffection grow into organized objections, as happened in the former Soviet Union? Does the failure of a command-and-control economy mean political reform?
Given communism’s iron hand, not likely in the near term. But three implications do-follow. First, those dependent on China are vulnerable, so supply chains across Asia, Russia, and Europe will shudder. Second, China may have to rethink their beeline for “global dominance.”
Finally, America should take a lesson: Socialism, mass debt, runaway spending, and centralized power are wrongheaded, dangerous to individual liberties, and impair social wellbeing. Simple, but true.