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The desperate suzerains of the Red Ponzi are incorrigible. There appears to be no insult to economic rationality that they will not attempt in order to perpetuate their power, privileges and rule.

So now comes the most preposterous gambit yet. Namely, a veritable tsunami of state handouts to foster, yes, capitalist entrepreneurs!

That’s right. As described by Bloomberg, Premier Li Keqiang gave the word, and, presto, nearly $340 billion poured into an instantly confected army of purported venture capital funds run by local government officialdom all over the land.

China is getting into the venture capital business in a big way. A really, really big way.

The country’s government-backed venture funds raised about 1.5 trillion yuan ($231 billion) in 2015, tripling the amount under management in a single year to 2.2 trillion yuan ($340 billion), according to data compiled by the consultancy Zero2IPO Group. That’s the biggest pot of money for startups in the world and almost five times the sum raised by other venture firms last year globally, according to London-based consultancy Preqin Ltd.

Really? These are the same folks who built themselves a 1.2 billion ton steel industry in less than two decades, representing double what they can actually use and far more capacity than the rest of the world combined. That freakish industrial eruption is now tumbling into a red hole of losses, decay, abandonment and waste, but never mind. Now the Beijing comrades are going to seed venture capitalists at 5X the rate of the entire planet?

It puts you in mind of Mao’s Great Leap Forward, which endeavored to put a steel furnace in every Chinese farmer’s back yard. Of course, when they melted down their plows and hoes for scrap, the resulting leap was not exactly forward.

…click on the above link to read the rest of the article…

China’s $6.6 Trillion Toxic Loan Problem

February 8, 2016

China’s $6.6 Trillion Toxic Loan Problem

Rotting Vegetables

“As long as you’re green, you’re growing. As soon as you’re ripe, you start to rot,” once remarked Ray Kroc, mastermind of the McDonald’s franchise empire.

At the moment, no truer words can be spoken for China’s ripe economy. The Middle Kingdom’s 30-year economic boom is being overcome with the unpleasant odor that befalls rotting vegetables. What’s more, there’s no way to reverse it.

Photo credit: fmh

Economic activity in China is stalling out. All of the sudden, the mistakes that were hidden by a growing economy are surfacing en masse. Excess capacity is turning up in all corners of the economy and no one knows what to do about it.

Each day, it seems, new rot comes to bear upon Beijing’s central planners. Somehow the miracle workers have lost their hot hand. A slowing economy, falling stock market, exodus of wealth, and weakening currency are not conforming to the graphs and statistics reported in the latest blueprint for the planned economy.

How could it be that the professional politicians, who’d sparkled with genius all these years, so grossly missed their targets? Aren’t the talented men, who’d lorded over a contrived capitalism all these years, capable of fixing this? Perhaps these are the wrong questions to be asking.

China’s Politburo – from left to right, Zhang Gaoli, Liu Yunshan, Zhang Dejiang, president Xi Jinping, prime minister Li Keqiang, Yu Zhengsheng, Wang Qishan (Wang is running Xi’s anti-corruption effort. If you want to find him, go to Zhongnanhai and ask for Wang’s wing).

Photo credit: Carlos Barria / Reuters

Individual Preferences

Simply put, an economy cannot be executed by a central government to fulfill the objectives of a five year plan. At times this may appear to be so. But these instances are mere coincidence…not the result of an erudite centralized mastery.

…click on the above link to read the rest of the article…

Meet China’s Latest $1.8 Trillion “Problem”

February 1, 2016

Meet China’s Latest $1.8 Trillion “Problem”

Last summer we outlined how Chinese banks obscure trillions in credit risk.

The powers that be in Beijing aren’t particularly keen on allowing the banking sector to report “real” data on souring loans – especially given the fragile state of the country’s economy. In some cases, the Politburo will pressure banks to simply roll over bad debt, effectively kicking the can.

In addition, banks carry around 40% of their credit risk outside of “official loans.” Here’s what Fitch had to say last year:

“Off-balance-sheet financing (I.e. trust loans, entrusted loans, acceptances and bills) accounted for 18% of official TSF stock at end-2014, up from less than 2% just over a decade ago,” Fitch wrote. “Of the off-balance-sheet exposure reported at individual banks, this is equivalent to 15% of total assets for state commercial banks and 25% for mid-tier commercial banks, on a weighted average basis. These ratios would be even higher if we included entrusted loans (see Figure 2), although this information is not disclosed at all banks. Fitch estimates that around 38% of credit is outside bank loans.”

In many cases, channel loans (so credit extended by banks via non-bank intermediaries) are carried as “investments classified as receivables” on the balance sheet.

Now, as more Chinese firms lose access to traditional financing amid rising defaults and increasing economic turmoil, banks are increasingly turning to channel loans as a way of extending credit.

In turn, the amount of “investment receivables” on many mid-tier banks’ books is soaring to dizzying levels. “Mid-tier Chinese banks are increasingly using complex instruments to make new loans and restructure existing loans that are then shown as low-risk investments on their balance sheets, masking the scale and risks of their lending to China’s slowing economy,” Reuters reports. “The size of this ‘shadow loan’ book rose by a third in the first half of 2015 to an estimated $1.8 trillion, equivalent to 16.5 percent of all commercial loans in China.”

…click on the above link to read the rest of the article…

Red Ponzi Ticking

January 28, 2016

Red Ponzi Ticking

There is something rotten in the state of Denmark. And we are not talking just about the hapless socialist utopia on the Jutland Peninsula——even if it does strip assets from homeless refugees, charge savers 75 basis points for the deposit privilege and allocate nearly 60% of its GDP to the Welfare State and its untoward ministrations.

In fact, the rot is planetary. There is unaccountable, implausible, whacko-world stuff going on everywhere, but the frightful part is that most of it goes unremarked or is viewed as par for the course by the mainstream narrative.

The topic at hand is the looming implosion of China’s Red Ponzi; and, more specifically, the preposterous Wall Street/Washington presumption that it’s just another really big economy that overdid the “growth” thing and is now looking to Beijing’s firm hand to effect a smooth transition. That is, an orderly migration from a manufacturing, export and fixed investment boom-land to a pleasant new regime of shopping, motoring, and mass consumption.

Would that it could. But China is not a $10 trillion growth miracle with transition challenges; it is a quasi-totalitarian nation gone mad digging, building, borrowing, spending and speculating in a magnitude that has no historical parallel.

So doing, It has fashioned itself into an incendiary volcano of unpayable debt and wasteful, crazy-ass overinvestment in everything. It cannot be slowed, stabilized or transitioned by edicts and new plans from the comrades in Beijing. It is the greatest economic trainwreck in human history barreling toward a bridgeless chasm.

And that proposition makes all the difference in the world. If China goes down hard the global economy cannot avoid a thundering financial and macroeconomic dislocation. And not just because China accounts for 17% of the world’s $80 trillion of GDP or that it has been the planet’s growth engine most of this century.

…click on the above link to read the rest of the article…

China’s Slow-Motion Sleight Of Hand Shatters

January 4, 2016

China’s Slow-Motion Sleight Of Hand Shatters

The Chinese stock markets broke through 2 circuit breakers today, breakers that were introduced only a few months ago in response to the market selloff, triggered by a surprise yuan devaluation, in August. The first breaker, at -5%, forced a 15-minute trading halt. The second one, at -7%, halted trading for the rest of the day.

For many people, today’s bust can’t have been a huge surprise, because it’s been known for some time that a ban on stock sales by parties holding a 5% or larger stake in a company, is set to expire on Friday. Beijing may panic again before that date, but it can’t force stakeholders to hold on to large portfolios forever either.

Xi and his crew should have stayed out of the markets from the start, but that’s not how they see the world. They still think like apparatchicks, and don’t understand that markets are opposed, at a 180º angle, to top down control. You can either have a market, or you can have central control.

They pumped up the housing market for all they could, and when that bubble blew they tricked their people into buying stocks. And now that one’s fixing to die too, and that didn’t take nearly as long as the housing bubble. The central control team is frantically looking for the next carnival attraction, but it won’t be easy.

They should have stayed out of all markets. Just like western central banks. All interference by governments and central banks can only make things worse, a fact at best temporarily hidden by the distortions they force upon markets.

And we shouldn’t forget that expectations for China as the world’s economic savior determined western central bank ‘thinking’ to a large extent over the past decade. Like so many others, central bankers too are incapable of spotting a Ponzi when it’s staring them in the face.

…click on the above link to read the rest of the article…

Empire of Chaos preparing for more fireworks in 2016

December 27, 2015

Empire of Chaos preparing for more fireworks in 2016

In his seminal ‘Fall of Rome: And the End of Civilization,’ Bryan Ward-Perkins writes, “Romans before the fall were as certain as we are today that their world would continue forever… They were wrong. We would be wise not to repeat their complacency.”

The Empire of Chaos, today, is not about complacency. It’s about hubris – and fear. Ever since the start of the Cold War the crucial question has been who would control the great trading networks of Eurasia – or the “heartland”, according to Sir Halford John Mackinder (1861–1947), the father of geopolitics.

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We could say that for the Empire of Chaos, the game really started with the CIA-backed coup in Iran in 1953, when the US finally encountered, face to face, that famed Eurasia crisscrossed for centuries by the Silk Road(s), and set out to conquer them all.

Only six decades later, it’s clear there won’t be an American Silk Road in the 21st century, but rather, just like its ancient predecessor, a Chinese one. Beijing’s push for what it calls “One Belt, One Road” is inbuilt in the 21st century conflict between the declining empire and Eurasia integration. Key subplots include perennial NATO expansion and the empire’s obsession in creating a war zone out of the South China Sea.

As the Beijing-Moscow strategic partnership analyses it, the oligarchic elites who really run the Empire of Chaos are bent on the encirclement of Eurasia – considering they may be largely excluded from an integration process based on trade, commerce and advanced communication links.

Beijing and Moscow clearly identify provocation after provocation, coupled with relentless demonization. But they won’t be trapped, as they’re both playing a very long game.

…click on the above link to read the rest of the article…

US aimed to nuke civilian populations in enemy cities during Cold War – declassified document

December 23, 2015

US aimed to nuke civilian populations in enemy cities during Cold War – declassified document

A newly released Cold War-era list of nuclear targets shows the US planned to inflict “systematic destruction” on enemy cities and target the “population” of those areas. It is the most comprehensive Cold War nuclear target list to become declassified.

The Strategic Air Command (SAC) Atomic Weapons Requirements Study for 1959, produced in June 1956, was published by the National Security Archive on Tuesday.

Totaling almost 800 pages, the document details targets in over 1,200 cities, including Moscow, Beijing, and Warsaw. The list for each city contains details on targeting the population, along with industrial and infrastructural targets.

Moscow and Leningrad were marked as priority one and two, respectively. Moscow had 179 Designated Ground Zeros (DGZs), while Leningrad had 145, in addition to “population” targets. In both cities, the list identified air power installations such as Soviet Air Force command centers, which the US would have demolished with thermonuclear weapons early in the war.

The document also includes lists of more than 1,100 airfields in the Soviet bloc, with a priority number assigned to each base. The Soviet bomber force was the highest priority for nuclear testing, and the list labels Bykhov and Orsha airfields, both located in Belorussia, as priority one and two, respectively. Medium-range Badger (TU-16) bombers, which would have posed a threat to the US and NATO allies, were present at both bases.

Soviet airfields were to be targeted with bombs ranging from 1.7 to 9 megatons, which were capable of inflicting heavy damage. The US also hailed the necessity of a 60-megaton bomb (4,000 times larger than the Hiroshima bomb’s 15 kilotons), which was capable of delivering “significant results” in the event of war with the Soviet bloc.

The National Security Archive, based at George Washington University, obtained the nuclear target list through the Mandatory Declassification Review (MDR) process.

Half A Million Square Kilometers Of Heavy Smog Force Beijing To Issue “Orange Alert”, Close Factories

November 30, 2015

Half A Million Square Kilometers Of Heavy Smog Force Beijing To Issue “Orange Alert”, Close Factories

On Sunday, Beijing issued its highest smog alert of the year, upgrading it from the yellow of the past two days to orange, second only to red. According to local CCTV, heavy smog covered an area of half a million square kilometers around Beijing-Tianjin-Hebei region, as heavy air pollution hits 31 cities.

Xinhua reports that the municipal weather center said humidity and a lack of wind would mean the smog will linger for another two days, before a cold front arrives on Wednesday.

On Sunday, the reading for PM2.5, airborne particles smaller than 2.5 microns in diameter, hit 274 micrograms per cubic meter in most parts of the capital. Indicatively, the World Health Organization (WHO) considers only 25 micrograms to be a safe level.

Beijing has recommended that residents minimize outdoor activities and urged people with respiratory diseases as well as the elderly to stay at home.

It wasn’t just Beijing: moments ago Shanghai joined China’s capital in issuing an orange fog alert. The local government asked for heightened management of airports, highways and ferry terminals as heavy fog covered western and southern parts of the city, according to a website run by the Shanghai Meteorological Service said. Visibility is limiting visibility to 200 meters in Minhang, Songjiang, Qingpu, Baoshan, Jiading and Chongming areas, the website said. Orange is the 2nd-highest of 4-alert levels

In March, four types of pollution alerts – blue, yellow, orange and red – were introduced by Beijing’s Environmental Protection Bureau. All factories are to be shut down during orange alerts. Heavy vehicles, such as construction trucks, are also completely banned during orange and red alerts. Furthermore, construction sites should stop the transportation of materials and waste while heavy-duty trucks are banned from the roads.

In other words, the local economy shuts down.

…click on the above link to read the rest of the article…

US Will Send Warships To China Islands “Twice A Quarter”, Pentagon Says

November 2, 2015

US Will Send Warships To China Islands “Twice A Quarter”, Pentagon Says

Last week, the US did a silly thing. The Pentagon sent the USS Lassen to Subi Reef in the Spratlys just to see if Washington could sail by China’s man-made islands in the South Pacific without getting shot at.

(Subi reef)

(USS Lassen)

As ridiculous as that sounds from a kind of “let’s not start World War III” perspective, it’s an entirely accurate assessment of Obama’s “freedom of navigation” exercise. There was no reason whatsoever for the US to be there and the pass-by served no purpose at all other than to test Beijing’s patience.

To be sure, China isn’t innocent here. They’ve built 3,000 acres of sovereign territory atop reefs in disputed waters and built runways, ports, and cement factories on their new “land” which understandably makes Washington’s regional allies like The Philippines a bit nervous.

Still, it isn’t as if the PLA is about to invade Australia and it seems likely that if one could listen in at The Pentagon, US officials could probably care less about these “sandcastles.” But America’s “friends” in the region think that “this is the time for courage” (to borrow and alter a classic Gartman-ism), and so, Washington felt compelled to sail a warship by the islands just to prove it could. China didn’t fire on or surround the US-flagged guided missile destroyer, but the PLA did follow it and Beijing subsequently expressed its extreme displeasure at the “exercise.”

As we noted before and after the “incident”, most “experts” believe the US will need to keep up the patrols if they’re to be “effective.” Sure enough, The Pentagon now says destroyers will sail within 12 nautical miles of the islands twice every three months. Here’s Reuters:

The U.S. Navy plans to conduct patrols within 12 nautical miles of artificial islands in the South China Sea about twice a quarter, a U.S. defense official said on Monday.

…click on the above link to read the rest of the article…

It’s On: Obama Sends Destroyer To Chinese Islands, China Vows Military Response

October 26, 2015

It’s On: Obama Sends Destroyer To Chinese Islands, China Vows Military Response

For anyone who might still be somehow unaware, the US is currently in a superpower staring match with both Russia and China. The conflict in Syria has put Moscow back on the geopolitical map (so to speak), creating an enormous amount of tension with Washington whose regional allies have been left to look on in horror as Russian airstrikes and an Iranian ground incursion dash hopes of ousting President Bashar al-Assad.

Meanwhile, in The South China Sea, Beijing has built 3,000 acres of new sovereign territory atop reefs in the Spratlys and although the reclamation effort itself isn’t unique, the scope of it most certainly is and Washington’s friends in the South Pacific are crying foul.

Beijing has continually insisted that it doesn’t intend to use the islands as military outposts, but the construction of runways and ports seems to tell a different story and so, Washington felt compelled to check things out over the summer by sending a Poseidon spy plane complete with a CNN crew to the area. Once the PLA spotted the plane the situation escalated quickly with the Chinese Navy telling US pilots to “Go Now!”

After that, an intense war of words developed with Defense Secretary Ash Carter insisting that the US would sail and fly anywhere it pleased and Beijing assuring the US that sailing within 12 nautical miles of the islands would prompt a harsh response from the PLA.

For weeks, the US was rumored to have been planning a freedom of navigation exercise in the Spratlys which, as we’ve pointed out several times this month, amounts to sailing by the islands just to see if China will shoot.

Jim Sciutto

✔@jimsciutto

Just in: @USNavy prepared to sail w/i 12mi of China’s manmade islands in #SouthChinaSea “w/i 24hrs”, has POTUS approval -Def. Official

3:23 PM – 26 Oct 2015

…click on the above link to read the rest of the article…

Will The Crazed Neocons Bring Us Nuclear Winter?

October 20, 2015

Will The Crazed Neocons Bring Us Nuclear Winter?

As readers know, I have emphasized that the declared neoconservative intention of achieving global hegemony has resurrected the threat of nuclear armageddon as Russia and China are most definitely not going to submit, as every European country, the UK, Canada, Australia, New Zealand, Columbia, and Japan have submitted, to being Washington’s vassals.

The president of Russia and the president of China have made this completely clear.

If the arrogance, ignorance and incompetence of the Western political systems permit the continuation of the crazed, totally unrealistic, neoconservative agenda, the planet will die.

Ronald Reagan is the only US president during the era of nuclear weapons who was committed to removing them from all arsenals. I know because I was a part of his effort. If you can’t believe me, ask Pat Buchanan who was with Reagan at Reykjavik. In previous columns on my website, I quoted Buchanan’s response to my statements. Buchanan wrote to me that I was correct, that Reagan wanted rid of every nuclear weapon. That was President Reagan’s primary goal and is the reason for his economic program, which he placed in my hands. Reagan reasoned that if the US economy could be restored, the inability of the Soviet economy to be restored would allow him to pressure the Soviets into agreement to end the cold war and rid the world of nuclear weapons. When I get letters from those denouncing Reagan for his crimes, I wonder at the pride that the writers show in their utter ignorance and stupidity.

What the neocons have done is to throw away every treaty and violate every agreement that had the world on the path to nuclear disarmament. These evil persons have caused massive moderization of Soviet and Chinese nuclear forces. There is no prospect whatsoever of American hegemony over the world.

…click on the above link to read the rest of the article…

Red Swan Descending

October 20, 2015

Red Swan Descending

The proverbial peddlers of Florida swampland can now move over. They can’t hold a candle to the red suzerains of Beijing.

The latter had drawn a line in the sand at 7.0% GDP growth. Conveniently enough, the “consensus” estimate of so-called street economists was pegged at 6.8% for Q3, thereby giving authorities one thin decimal point through which to thread a “beat” at 6.9%.

By golly they did it!

Even then, China’s Ministry of Truth had to fiddle down the GDP deflator to negative 0.5% (for the second time this year) in order to hit the bulls eye. And that’s exactly the point.

No real world $10 trillion economy plagued with all of the turmoil evident in China’s whipsawing trade data or its volatile real estate development sector or its faltering rust belt and commodity-based industries can possibly deliver absolutely stable GDP numbers to the exact decimal point quarter after quarter.

In fact, the odds that these reports represent anything other than goal-seeked propaganda are so overwhelmingly high that they perforce raise another more important question. Why does Wall Street and its servile financial press not issue a loud collective guffaw when they are released?

But no, the Wall Street Journal took it all very seriously, noting both the “beat” and China’s claim that the “miss” wasn’t a miss at all:

The better-than-expected result—a Wall Street Journal survey of 13 economists forecast a median 6.8% gain—is likely to renew debate over the accuracy of China’s growth statistics…….Speaking at an event to promote entrepreneurism in Beijing on Monday, Premier Li Keqiang said “even though it was 6.9%, it is still a growth rate of around 7%.”

Right. China’s #2 communist boss is out promoting the “enterprenurial spirit” while emitting central planning propaganda to the decimal point.

…click on the above link to read the rest of the article…

Obama Won’t Back Down After Chinese Threat, Sends U.S. Warships To Contested Islands In “Matter Of Days”

October 12, 2015

Obama Won’t Back Down After Chinese Threat, Sends U.S. Warships To Contested Islands In “Matter Of Days”

On Friday, we reported the latest provocation in what has truly become a very dangerous, if largely pointless, staring contest between Beijing and Washington over China’s reclamation of land in The South China Sea.

Responding to suggestions that the US was set to sail warships around the islands Beijing has constructed atop reefs in the Spratlys, China served noticed that it would “never allow any country to violate China’s territorial waters and airspace in the Spratly Islands, in the name of protecting freedom of navigation and overflight.” This was simply a formalized version of the more concise phrasing the PLA navy used when they instructed the pilots flying a US spy plane to “Go now!” when it ventured too close to Fiery Cross earlier this year.

It’s not immediately clear what China intends to do with the islands and further, it’s not entirely clear why anyone should necessarily care if Beijing wants to build “sand castles” in the middle of the ocean, but then again, for America’s regional allies the land reclamation efforts look a lot an attempt to build a series of military outposts by creating sovereign territory where there was none thereby effectively redrawing maritime boundaries and so, big brother in Washington is set to step in in order to protect vital shipping lanes.

Of course having already said that the navy plans to sail ships into the waters around the islands, the US can ill-afford to allow China’s “we won’t tolerate that” pronouncement to deter the Pentagon because the optics around that would be terrible at a time when the world is already questioning the strength and resolve of the US military. So the ships will indeed sail. Here’s WSJ:

…click on the above link to read the rest of the article…

Dying Petrodollar Ripples Through Markets As Asset Managers Bemoan Loss Of Saudi Bid

September 28, 2015

Dying Petrodollar Ripples Through Markets As Asset Managers Bemoan Loss Of Saudi Bid

One of the key things to understand about China’s liquidation of hundreds of billions in US paper is that far from being a country-specific phenomenon, it actually marks the continuation of something that’s been taking place in other emerging markets for some time.

As we outlined in “Why It Really All Comes Down To The Death Of The Petrodollar,” the forced sale of Beijing’s UST reserves is simply the most dramatic example of what Deutsche Bank has called “quantitative tightening.” For years, reserve managers in the world’s emerging economies worked to accumulate war chests of USD-denominated paper in an effort to ensure that in a crisis, they would have sufficient firepower to guard against speculative attacks on their currencies and/or accelerating capital outflows. Slumping commodity prices and the threat of a supposedly imminent Fed hike have conspired to put pressure on these reserves and outside of China, nowhere is this dynamic more apparent than in Saudi Arabia. Indeed it was the Saudis who dealt the deathblow to the great EM reserve accumulation.

By intentionally killing the petrodollar, Riyadh effectively ensured that the pressure on commodity currencies would continue unabated, but as we’ve documented exhaustively, that was and still is considered an acceptable outcome if it means bankrupting the US shale complex and securing market share. But for Saudi Arabia, this is all complicated by three things: 1) the necessity of preserving the lifestyle of everyday citizens, 2) spending associated with the proxy war in Yemen, and 3) defense of the riyal’s dollar peg. All of those factors have served to weigh heavily on the county’s already depleted petrodollar reserves, and if the “lower for longer” crude thesis plays out, Riyadh may see further pressure on its current and fiscal accounts which are now both squarely in the red.

…click on the above link to read the rest of the article…

From Miracle to Cataclysm – why the commodity bust will last for years

September 12, 2015

From Miracle to Cataclysm – why the commodity bust will last for years

The Chinese Jīngjì qíjī, wirtschaftswunder, keizai no kiseki, milagro económico or whatever you want to call is neither a miracle nor distinctly Chinese. A basket case like Argentine managed to pull off a similar feat, albeit with more volatility, over a 42 year timespan beginning in 1870. Germany did even better between 1945 and 1970. And Japan had its own miracle from 1950 to 1990.

Giving the Beijing consensus, whatever that may be, credit for creating an unprecedented economic miracle is naïve and have led pundits all over the world to make disastrously optimistic forecasts for what the future will bring. Commodity producers as far away as Latin America, Africa and Australia have poured money into capacity expansions with a very simple strategy; can’t sell it? Dump it in China, they’ll take it. We have seen this, admittedly expressed more eloquently, first hand.

Source: Angus Maddison, International Monetary Fund, Bawerk.net

China is several countries centrally governed by a ruthless power elite with vested interest in maintaining the status quo. To expand their own power, wealth and status all they had to do was open up their borders to foreign capital and supplying it with slave labour. It is not very difficult, even a communist can figure it out. However, as the economy evolved it needed investments in infrastructure which was easily funded by stealing workers savings (financial repression on a scale the Yellen’s and Draghi’s of the world can only dream off) and funnelling it into state owned enterprises with lucrative government contracts. They didn’t even have to pay lip service to property rights as all property was and still is held by the state. In short, this stage of economic development involves resource allocation from the centre. As Michael Pettis argues in The Four Stages of Chinese Growth centralised capital allocation gets a tremendous support from the rent-seeking elite and are thus easy to implement.

…click on the above link to read the rest of the article…

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