China: Should we Copy It?

So many commentators these days are comparing our "capitalism" to China's "state capitalism" or "capitalism with Chinese characteristics and saying we should emulate theirs or that theirs is the model of the future. In the 1970s the same comments were being made about Japan's system. Japan has now been in a no growth period for two decades. China has grown significantly, doubling its GDP every decade for three decades or so. This while the U.S. has slugged along at 2.5% or thereabouts.

What people seem to ignore is that the central planner can not better the invisible hand. In turn, China's malinvestments will come home to roost. The government controls where resources are allocated and thus misallocates and is inefficient. An example is the stark ghost city, Kangbashi, in Inner Mongolia. The government built Kangbashi in just five years. It was designed to be the showcase urban center of Ordos City, a relatively wealthy coal-mining hub that's home to 1.5 million people. A public-works project worthy of Kubla Khan, Kangbashi is filled with office towers, administrative centers, government buildings, museums, theaters and sports fields and acre on acre of subdivisions overflowing with middle-class duplexes and bungalows. The only problem is that no one lives there. The district was originally designed to house, support and entertain 1 million people. Now, only a handful of cars drive down Kangbashi's multilane highways, a few government offices are open during the day and an occasional pedestrian can be seen trudging down a sidewalk. It looks like a Will Smith movie lot.

Government inefficiency is sure to come home to roost in China.