China's Lethal Instinct

An article in The Economist from this morning looks at how China's move towards privatisation of its strategic industries is being reversed. Many of China's largest corporations - including banks and airlines - received capital injections from the Central Government and/or had their shares purchased in the open market by China's sovereign wealth funds.

It is easy to liken this move to the recent nationalization of banks in the West. However, it is important to keep a few things in mind:

In the West, the nationalization of companies is part of an official policy, one that is being publicly debated (at varying degrees) and regaulted.
In the West, the press is free to monitor the process, and (tries to) look at how the said companies are spending the public funds they receive and how government officials exercise their control.
China is still governed by a totalitarian regime, and even before the latest wave of nationalization, more than 50% of its economy was directly controlled by the government.

So, is it a good idea? As usual with Chinese government initiatives, especially at times of crisis, it would probably make things easier to manage in the short and medium term and cause significant damage to the country's economic and social well-being in the long term.

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China's Lethal Instinct

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