The Discerning Texan

All that is necessary for evil to triumph, is for good men to do nothing.
-- Edmund Burke
Wednesday, October 31, 2007

Surprise: China's textbook example that Central Planning and Price Controls ultimately cause Shortages

In the end, Socialist central planning and market capitalism are like oil and water; they just don't mix. And in the People's Republic of China, when it comes down to letting the markets work vs. trying to fix the game, the Communists will interfere with the free market every time:
China's worst fuel crisis in two years spread to the capital and other inland areas by Wednesday, and one man was killed in a brawl at a petrol station queue, upping pressure on the government to intervene.

Diesel shortages in China's political heart, which escaped previous supply crunches unscathed, highlight tensions between the government and its increasingly independent oil firms about who should pay for the country's generous fuel subsidies.

Top refiner Sinopec on Wednesday pledged more supplies and bought additional diesel fuel abroad, but it may fall to Beijing to end the stand-off by raising domestic prices, easing taxes, promising another year-end pay-off -- or simply strong-arming suppliers into selling more fuel at a loss. ...

(Psst... hey guys, maybe if you will stop propping up your currency at artificial levels at the expense of the US Dollar, we could help you out with that oil shortage...)

Yes, China is in a growth period and short term gambles can certainly pay off big there. But the Government is still the 500 lb. gorilla in the room that many investors conveniently overlook. What this incident ultimately says to me is that any large long-term investment in China is still very very risky; especially considering their consumer spending is so low compared to most other countries.

Sooner or later, either Capitalism or Socialism has to give; the two are fundamentally incompatible.
DiscerningTexan, 10/31/2007 07:21:00 PM |