As I’ve mentioned earlier, the big problem in China as far as economic planning is concerned is the clash between free-market forces and government control. The reality is that China has been able to manage its growth precisely due to the huge power of government regulations. However, considering the softening global economy, it appears that the balance has turned the other way. It appears that there is so much government regulation that the private sectors are having a tough time growing. At the very least, it has a tough time meeting rosy government growth figures.
This awkward positioning of the Chinese economic growth between the devil and the deep, blue sea goes to the core of how the Chinese economy is structured. Based on the recent public pronouncement of China’s Premier Li Keqiang, the Chinese government is aware that it has so much power that it’s constricting the economy. It appears that the Chinese government is making some positive noises as to letting go of some restrictions or at least loosening the government’s grip on the economy to let the private sector flourish.
However, it appears that at some level, this is impossible. One of the hallmarks of a truly free economy is the ability of businesses to fire people. We’re talking about mass unemployment due to economic changes. I am sure the Communist Party is not going to be too thrilled about this possibility.
So even if the Chinese government is making sounds that are aimed at soothing global financial market investors, the reality on the ground is that it’s all about politics. It’s all about maintaining control. It remains to be seen how long the Chinese Communist Party can continue to have its cake and eat it too as far as the economy is concerned.