Kim Jong-un’s Palace of Freedom

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SFL China

Even among libertarians, opinions on Chinese economic growth seem to be highly polarized between those who believe that there are genuine economic reforms, and those who take it as a bubble about to burst (I personally think it will implode). I like to call this the delectatio morosa of libertarianism because it seems pretty clear to me that for a libertarian to praise the economic system of a Communist country is nothing more than a pleasant sinful thought. And you can have this thought because, well, you are basically on the other side of the world and it will not affect you.

The other day I came across one of these “sins” in the form of a meme that an international libertarian group, Students for Liberty, had created in Spanish. I ignore if there is an English version of this, but certainly many people could easily get seduced by the idea reflected here. It reads as follows:

“Zhejiang is usually called the free-market province of China. Low regulations and local entrepreneurship have resulted in the highest GDP per capita in China. Freedom works, Give it a chance!”

As I said, I don’t see why, having so many examples at hand, we have to take China as one. Wouldn’t it be better to compare China with Hong Kong or even Taiwan? Or North Korea with South Korea? Likewise, choosing a part of a country which is basically a one-party state dictatorship seems quite far-fetched. By the same logic we could argue that Kim Jong-un’s North Korea’s palace is a libertarian paradise worth our praise. The main problem, however, is that the previous statements about Zhejiang´s economic freedom are plainly and simply false (They are based either on an old article published by Bloomberg Business, or on a more recent article by the Observer Research Foundation).

The problem with Chinese GDP is that numbers are probably far from real. From my own experience I would say that the highest GDP per capita belongs to either Guangzhou or Shenzhen, a Special Economic Zone established just in the frontier of Hong Kong. In fact, according to official data released by the Chinese government which can be read here, Guangzhou has the highest nominal GDP. However, another survey from the same source claims that the highest GDP per capita belongs to the municipality of Tianjin, Zhejiang being the fifth.

This is quite a claim. I have lived and worked in Tianjin for some time, and normal workers hardly make it up to 30,.000 yuan/year. A university teacher, like me, could earn between 66,000 and 78,000 yuan/year, which is almost half of the wage of a professor from the southern province of Fujian (eighth on the list). Something is obviously wrong with these numbers.

Derek Scissors hit the jackpot when he wrote that “the overriding function of the [National] bureau [of Statistics], and the rest of the government, is to ensure the Party’s grip on power. The Party does not like instability or prolonged bouts of bad news, so these do not officially occur. China never acknowledges even brief periods of GDP growth below 6 percent, inflation rates near 10 percent, or urban unemployment over 6 percent. Rural unemployment is not discussed at all.”

This clearly explains why a city such as Tianjin, with little business opportunities, endless building projects, and deserted shopping malls can pose as the highest GDP per capita in China.

Not only is it false that Zhejiang has the highest GDP in China. Even if it had, it would mean nothing because, as Frank Shostak from the Mises Institute puts it:

The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth expansion, or a reflection of capital consumption.

For instance, if a government embarks on the building of a pyramid, which adds absolutely nothing to the well-being of individuals, the GDP framework will regard this as economic growth. In reality, however, the building of the pyramid will divert real funding from wealth-generating activities, thereby stifling the production of wealth. […]

[T]he entire concept of GDP is devoid of any basis in reality. It is an empty concept.”

Or, as Mises himself said in Human Action:

“The attempt to determine in money the wealth of a nation or the whole mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimension of the pyramid of Cheops.”

And, if we have to believe Joseph Salermo’s insightful article, “How Reducing GDP Increases Economic Growth,” then Chinese GDP true colors are in fact as red as they can get.

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