On Chinese state capitalism

Found these in my notes, sadly without a citation so couldn’t find the source.

One thing you learn from spending time studying China is that the Chinese state has an asymmetric advantage in much better understanding the US than the US understands China and being very good at deliberately structuring their systems and policies in a way that consistently exploits the weaknesses in how Western liberal democracies are organised.

I think the much bigger story here is how China’s state capitalism is being used to probe structural weaknesses in Western free market capitalism. Under free market capitalism, the private sector and the state are fundamentally opposed. The government’s proper role is to act as a guardian of the system and establish the rules of play so that the “free market” can flourish and the role of companies are to compete to the maximum extent inside the constraints of regulation. State capitalism comes from a totally different set of first principles, under state capitalism, the private sector is a collaborator with the state and the work in concert to further the goals of the nation. Companies are allowed to compete when it would be beneficial to the state that they compete and forced to co-operate when it’s beneficial to the state that they co-operate. Both systems start from a very different set of first principles and they each have their own pros and cons but China knows how to exploit the cons of free market capitalism much better than the US knows how to exploit the cons of state capitalism.

One structural weakness of free market capitalism is that it has intrinsic difficulty dealing with co-ordination problems arising from prisoner’s dilemma situations. Take the recent “Taiwan, China” airline thing. China announces that all airline websites must list the destination as “Taiwan, China” or risk losing rights to access the Chinese air market. Now, this risk is a total paper tiger, any sober minded analysis could demonstrate that China would be hurt way more than losing flight volume than they would gain from words on a webpage. If all US airlines stood up in unison and said they opposed the change, China would rapidly back down, the whole “hurt feelings” stuff is just window dressing for political negotiation. However, if all but one airline caved, that airline would get all of China’s flight volume, China would not be meaningfully hurt but every other company would be damaged.

The problem is, there’s no effective mechanism under free market capitalism to do that. The “right” mechanism would be for the government to simply pass a law saying all US airlines must not refer to Taiwan as Taiwan, China and China would have immediately backed down. The problem is:

  • The US is utterly incapable of passing legislation these days.
  • Even if it were capable, this would be something considered a massive overreach by the state and would be dragged into lawsuits for years.
  • Absent legislation, such co-operation would be arguably even illegal as it would run afoul of anti-trust as cartel like behaviour.

So, as China predicted, you had airlines folding one by one over an utterly trivial issue because the fundamental bedrock assumptions of free market capitalism do not allow them to do otherwise.

The difference with the Houston Rockets case is that the NBA does exist as a mechanism for there to be a unifying voice of the league. China initially played this the same way it always does, by performing a surgical culling of the Rockets specifically, they were expecting the rest of the league to be cowed and force the Rockets to back down. What they didn’t realise was that professional sports in the US are run as a socialist collective and sports leagues are one of the only areas of American life which are explicitly sanctioned to run as a cartel. Thus, the NBA has the freedom to say fuck you to China in a way that movie studios and airlines cannot because they realise China needs the NBA more than the NBA needs China.