"The curious task of economics is to demonstrate to men
how little they really know about what they imagine they can design.” --
Friedrich Hayek.
One of the characteristics of centrally planned economies
like China is that officials and planners centralize many resources, which
creates centralized expectations from the people, and since planners’ egos
cannot really plan and control all factors, this often results in centralized
economic dislocation, disappointment, and anger.
Take the case of China’s debt.
Officially, China has a gross public debt/gross domestic
product (GDP) ratio of only 41% in 2014, manageable and just slightly higher
than the debt/GDP ratio of Taiwan and South Korea (38% and 36%, respectively).
But China has more debt that what it will officially admit.
A report by McKinsey Global Institute (MGI) said that
China total borrowings (individuals + companies + local and central governments
+ state enterprises) was 282% of GDP in 2014, higher than the debt ratio of the
US, Germany, Canada, and other big economies. (See Graph 1)
This was discussed in “The Chinese Financial Crises and
their Impact on Asia,” one of the panel discussions during the
recently-concluded “Asia Liberty Forum” in Kuala Lumpur, Malaysia from Feb.
18-20. The session was chaired by Prof. Christopher Lingle of the Universidad
Francisco Marroquin in Guatemala. The speakers were Dr. Carmelo Ferlito, IDEAS
Senior Fellow, Malaysia and Adjunct Faculty Member at INTI International
College Subang, Malaysia, Andrew Shuen of Lion Rock Institute, Hong Kong, and
Dr. Mao Shoulong, Renmin University, also of Unirule Institute, China. These
three independent think tanks -- IDEAS, Lion Rock, and Unirule are all members
of the Economic Freedom Network (EFN) Asia. (See Graph 2)
In his presentation, Carmelo Ferlito noted that from
2003-2008, China’s total debt was stable to declining at 170% of GDP, then by
2009, it exploded and kept rising. He further noted that “a lot of this debt is
sitting in local governments or state-owned enterprises. There is assumption
that government can let its “zombie” entities stumble on as debt-paying
vehicles or maybe occasionally let a couple default without any systemic
contagion.
But now the Chinese government again began buying stocks
to prop up its plummeting stock market, that is unsustainable.”
LESSONS FOR SOUTHEAST ASIA
With the continuing financial turmoil in China that
started last year, there are lessons to be explored for emerging economies in
the region like the Philippines.
1. Fiscal and household irresponsibility will snap. As
public and private debts become bigger, economic uncertainty will also rise as
those debts should be repaid. People will never know who can pay back and when,
and who will default.
2. Moral hazards. A central planning government tends to
attract less-studied behavior by the public. As a result, people with low
financial literacy may be encouraged to gamble their savings at the stock
market, thinking that the government will bail out anyway.
3. Central planning leads to central disappointment.
Central planning cannot and will not cure and control everything, including
stock prices, booms and busts, debt spirals, and inflation. Central planning
can only postpone small busts until these become bigger and burst.
Authoritarianism can never be compatible with free markets.
The great Nobel prize economist and political
philosopher, Friedrich Hayek, has some words to say about central planners. It
is important that economists and planners outside communist China should heed
them.
“No man or group of men possesses the capacity to
determine conclusively the potentialities of other human beings and that we
should certainly never trust anyone invariably to exercise such a capacity.” --
The Constitution of Liberty (1960), Chapter 6, “Equality, Value and Merit.”
Bienvenido S. Oplas, Jr. is the President of Minimal
Government Thinkers, a member of the Economic Freedom Network (EFN) Asia, and a
fellow of South East Asia Network for Development (SEANET). minimalgovernment@gmail.com
See also:
BWorld 11, China's stockmarket and central planning, July 18, 2015
BWorld 43, More on WESM, PEMC and DOE, February 14, 2016
BWorld 44, Why the Philippines should join the TPP, February 19, 2016
BWorld 45, Asia Liberty Forum and property rights, February 20, 2016
China Watch 22, On many rich Chinese leaving their country, January 17, 2016
No comments:
Post a Comment