Deng must be smiling somewhere--from marketreflections.com

MKT’s Perspective Today: Deng must be smiling somewhere

Today’s rout in US mkt is ugly, and nobody would have thought of that after enduring bad CPI number, Iran, Democratic control in Congress, US financial mkt actually jerked its knee in Shanghai. And China has done nothing yet in bonds or currency mkt. In that sense, Deng must be smiling somewhere.

It was actually in Shanghai Deng re-initiated CCP’s march towards the Chinese style capitalism in 1992, three years after 64 and a couple years after the collapse of Soviet CP and its Eastern European junior brothers.

CCP was definitely challenged and stressed in front of torrents of events which had happened domestically and internationally around that time. But Deng, one of the 1^st generation leaders of CCP was unmoved in his pushing China forward, stepping on one stone at a time, crossing an otherwise rough river.

Deng’s followers, the 3^rd and the 4^th generation leaderships, have done pretty well since then. Today, CCP got deep pockets, measured in their foreign exchange reserve on one hand, and central govt tax revenue on the other, with country’s key industries ran profitably by red-capitalists managed state companies, while the vast other parts of economy are fortressed by businesses of all kind of different ownerships, from private to foreign to some kind of official. Today, China is definitely the engine of world economic growth, with a stable and highly effective and efficient and yet still centralized political leadership, and they are doing nothing but money-making businesses.

In my view after reading Chen jng’s articles, CCP has been developing its own unique capitalism model ever since then: while still in the framework of a market, many key players are govt owned companies at state, province and all other levels, and state still owns key resources such as land and minerals, in a otherwise pretty much privatized market economy.

No, this is not the classic capitalism the West thought it had already designed for USSR and PRC, with an afterwards follow-through change in political system as well. That design was implemented in formal USSR by West and in India by British .The West has been aiming to do the same in Middle East.

CCP, on the other hand, has decided to join the world capitalism game but yet playing in its own way. Why not leveraging on its political power? Why giving away a lot of control of money and natural resources to private ownership as formal USSR did? Why not leveraging the diplomatic and military power of a sovereign state?

There is no pure laissez-faire capitalism anyway, and Keynes knows that. For a long while US govt economic policy (fiscal and monetary) had modeled after Keynesian economics, where govt would try with its spending to close the gap between aggregate demand and aggregate supply, where demand seems always short, due to the dilemma in capitalist economy: there is never enough money for the majority. Even under monetarism, US Gov’t (Fed) is still doing the same essentially: Fed “innovated” financial system in such a way that everybody can borrow from future and spend now, or sell future to buy now if you will.

History has yet to make a final call on the CCP’s capitalism model. But it seems so far so good, and the West, particularly its financial market has noticed that.