STAFF NEWS & ANALYSIS
Elite Retreat: Now Chinese Leaders Plot a Freedom Reformation!
By Staff News & Analysis - May 27, 2013

China Plans to Reduce the State's Role in the Economy … Beijing has signaled that, even though the economy is weakening, there is unlikely to be a major government stimulus package this year. The Chinese government is planning for private businesses and market forces to play a larger role in its economy, in a major policy shift intended to improve living conditions for the middle class and to make China an even stronger competitor on the global stage. In a speech to party cadres containing some of the boldest pro-market rhetoric they have heard in more than a decade, the country's new prime minister, Li Keqiang, said this month that the central government would reduce the state's role in economic matters in the hope of unleashing the creative energies of a nation with the world's second-largest economy after that of the United States. – New York Times

Dominant Social Theme: Freedom is never necessary … except when we decide it is …

Free-Market Analysis: So now we come to understand how the ChiCom leaders intend to get out of the trap that they themselves have constructed and set.

In a series of articles stretching back close to three years now, we documented the rise and fall of the Chinese economy and predicted that central banking stimulation of this vast economy would eventually place the Chinese government in a terrible bind.

At the beginning, we received a lot of pushback from readers, for the mainstream media was still trumpeting the Chinese Miracle. But we are confident of the predictive powers of our paradigm – a free-market Austrian paradigm. We knew no economy grows from poverty to the second largest economy in the world in 30 years without incredible amounts of money printing.

The Chinese had adopted full scale the Western model of top-down control, including excessive fiat stimulation. This was no accident, either, in our view. Chinese and Western leaders work closely together and their interests are aligned. The idea that the Anglosphere and China are increasingly military and economic enemies is likely a myth propounded for purposes of political advantage and to create further domestic controls.

Still, the Western mainstream press prates the view that the Chinese Miracle was due to the hard work of its people and the innate wisdom of the Asian culture married to communist opportunities. China's dirigiste model in which leaders led and citizens exercised free-market opportunities within strict boundaries has been held up as a superior one.

But now the ridiculousness is exposed. What has happened to China is what has happened to Japan, which struck the same devil's bargain with the West. Japan's central bank stimulated and Japan's economy roared to life. Then Japan bought US government bonds and US consumers, enriched, were guided to buy Japanese products.

You cannot stimulate forever without terrible distortion. At one point, the grounds of the Emperor's palace were worth more than the entire state of California. And then it all came crashing down and Japan entered a 20 year depression of sorts. When economies are built on fiat money printing rather than the innate and sensible growth provided by free-market money (likely including gold and silver), they tend to fly high and fall hard.

Thus, now, exactly the same thing is threatening China, but on a bigger scale. And those in the leadership know it. They are surely worried that what happened to Japan once the bubble deflated will happen in China too. In fact, Austrian economics tells us that once you have inflated a bubble, there is no way to deflate it but to let the economy subside to more normal circumstances.

But this cannot be done in China. There are still about 500 million who never tasted the real luxuries of China's explosive growth. To let the bubble deflate will be to risk the wrath of these deprived individuals who have been promised much but received little.

What to do? What to do? Well, unexpectedly – a kind of masterstroke – the ChiCom leaders have decided to do the one thing they CAN do. Liberalize the economy. The last wretched vestiges of communism – within certain limits of course – are to be cleared away. A vital domestic economy is to be substituted for a more authoritarian export-oriented one.

It is a breathtaking gamble because no closed society can long survive true gusts of economic freedom. By taking this action, the ChiComs are taking an incredible risk that economic power-to-the-people will spread eventually to the political sphere.

In our view, this is both noble and desperate. The leadership is trying to do something that has likely never been done in history; they are creating economic freedom without evolving similar political conditions.

Here's more from the article:

On Friday, the Chinese government issued a set of policy proposals that seemed to show that Mr. Li and other leaders were serious about reducing government intervention in the marketplace and giving competition among private businesses a bigger role in investment decisions and setting prices. Whether Beijing can restructure an economy that is thoroughly addicted to state credit and government directives is unclear. But analysts see such announcements as the strongest signs yet that top policy makers are serious about revamping the the nation's growth model.

"This is radical stuff, really," said Stephen Green, an economist at the British bank Standard Chartered and an expert on the Chinese economy. "People have talked about this for a long time, but now we're getting a clearly spoken reform agenda from the top." China's leaders are under greater pressure to change as growth slows and the limitations of its state-led, investment-driven economy are becoming more evident.

This month, manufacturing activity contracted for the first time in seven months, according to an independent survey by HSBC. Economists are lowering their growth forecasts and weighing the risks associated with high levels of corporate and government debt that have built up over the last five years. "There are quite a number of messages coming from these new leaders," said Huang Yiping, chief economist for emerging Asia at the British bank Barclays. "They realize that if we continue to delay reforms, the economy could be in deep trouble."

We would only add the nation's top leaders ARE in trouble, just as we have been predicting. The problems with the Great Leap Forward that starved 50 million and the equally noxious Tiananmen Square crackdown has left the Chinese leadership with a "two strikes" environment. (Three strikes and yer "out.") If the economy goes down, the Party goes down with it.

Here is the broadness of the gamble that is being taken:

The broad proposals include expanding a tax on natural resources, taking gradual steps to allow market forces to determine bank interest rates and developing policies to "promote the effective entry of private capital into finance, energy, railways, telecommunications and other spheres," according to a directive issued on the government's Web site. "All of society is ardently awaiting new breakthroughs in reform," the directive said. Foreign investors will be given more opportunities to invest in finance, logistics, health care and other sectors.

We've already pointed out in numerous articles that Western powers are intent on continuing the great game by replicating the savage fiat growth of Japan and China in Africa. In fact, the fate of the world may depend on these calibrations. Abenomics is no accident: the globalists in our humble view have overplayed their hand. The combination of their determination to create an ever-more powerful internationalism combined with what we call the Internet Reformation has revealed – even to them – the precariousness of their position.

Perhaps they have realized, finally, that they have pushed too hard. We have predicted this as well, that they would come to see that in the Modern Era they cannot continue the 20th century's globalist consolidation. After a brief spate of overt authoritarianism they seem to be softening their line.

In the EU, the "implacable rigor" of Brussels's Eurocrats has given way to softer pleadings for Britain to stay in the EU and for Europe generally to forgive and forget recent mistakes. In the US, Obama rhetorically backs away from the wretched "war on terror." In Britain, there is a good deal of mainstream chatter about UKIP, which means the party is being used as an outlet for resentments, at least partially.

All over the world, one can feel a slight relaxation. Indeed, it is rhetorical, not reality. The authoritarian drive toward global centralization continues, but we sense – being good meme-watchers – that there is a tacking taking place.

In the case of China, it is more than a tacking. It is a determined risk-taking designed to help avoid a worldwide meltdown. Europe is not in recovery and neither is the US, despite mainstream media trumpetings. Japan continues to lag and if China goes down, the resultant depression will shake the foundations of Money Power itself.

They are afraid of their lawns being overrun and their estates pillaged. They are deeply afraid that in the modern era even their resources will be confiscated and the apparent plannings of an intergenerational movement to create a centralized society will come to naught.

This is an absurd risk being taken in China, and anyone who believes this is simply business as usual ought to "check their premises."

After Thoughts

We didn't predict this particular permutation, but it makes perfect sense within our operative paradigm.

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