China: The "World's Fastest Declining Economy"

From World Affairs via Al Fin:

As a result of declining exports and other factors, Beijing presided over the world’s fastest slowing economy. China’s economy, in fact, grew by about 15 percent in 2007, but fell to negative growth at the end of 2008.

Beijing stopped the precipitous decline with a $586 billion stimulus program, announced in November 2008. The plan created a “sugar high” as the central government flooded the country with money, but resulting growth will be short-lived. The state’s stimulus plan favors large state enterprises over small and midsize private firms, and state financial institutions are diverting credit to state-sponsored infrastructure. The renationalization of the Chinese economy with state cash will eventually lead to stagnation.

But the economy could fail before stagnation eventually sets in. Prime Minister Wen Jiabao, to fund his stimulus plan, has forced state banks to create the greatest surge of lending in history. One state manager, Lin Zuoming of Aviation Industry Corporation of China, publicly complained last April that central government officials forced him to borrow the equivalent of $49.2 billion from twelve Chinese banks, saying he did not know what to do with all the cash.

Government-mandated lending pushed unneeded funds into the Chinese stock markets, which caused an abnormal jump in prices; similar funds also flooded into the coffers of casinos in Macau, which had been languishing before the stimulus program. Predictions that Beijing’s plan might trigger the biggest wave of corruption in Chinese history now seem correct.

This is one more example of China's Totalitarian reflex.

China will always react to any problem with Socialist solutions. The only time they react with Free Market solutions is when the rising tide of the world's economy is lifting the Chinese economy along with it. In such a situation, the Chinese government will feel they can enact some free market solutions.

But, when things are tough, the answer is always top-down Socialism. The government dictates business solutions which interfere with the Free Market.

These Socialist solutions will always, in the long run, make things worse for China

The world is full of problems.

If a person, or a state, deals with all his problems by enacting "solutions" which make the problem worse, they can be fairly described as sowing the seeds of their own destruction.

China will destroy itself.