Imagine you are working as an investment banker in one of China\u2019s most famous companies. Everything is going well \u2014 a high-paying job, good social status, and finally, you\u2019re making money from the math you learned in university. Then, suddenly, your CEO disappears! This is what happened in China.\u00a0<\/p>\n
Bao Fan, a Chinese billionaire and chief executive of China Renaissance Holdings, went missing in February 2023. A year later, news came out that he had resigned from all roles at his firm. Still, no one knows where he is. This is not a unique event \u2014 it is part of a larger phenomenon: the disappearing Chinese CEOs.\u00a0<\/p>\n
The Economist<\/em> published an article titled \u201cThe Case of China\u2019s Vanishing Chairmen.<\/a>\u201d Losing contact with chief executives has become a common theme in China. Two listed Chinese companies announced in November 2023 that \u201ctheir chairmen had vanished without a trace.\u201d They tried to reach them via WeChat and contacted family members, but with no success. There\u2019s an interesting pattern: executives most often disappear from firms with high levels of debt. This phenomenon of disappearing CEOs reveals something deeper. It\u2019s not just a tactic of the Communist Party; it exposes an inherent flaw in the Chinese model.<\/p>\n The mixture of capitalism and socialism is not new.\u00a0<\/p>\n Though with different characteristics, Lenin tried state capitalism as well. After the enormous failures of his War Communism policies (7,196 percent inflation<\/a> in 1922, just to name one), he launched the New Economic Policy (NEP). And from the beginning, he noticed the problems of state capitalism.\u00a0<\/p>\n In 1922, he said<\/a>, <\/p>\n The machine refused to obey the hand that guided it\u2026 It was like a car that was going not in the direction the driver desired, but in the direction someone else desired \u2014 as if it were being driven by some mysterious, lawless hand, God knows whose, perhaps of a profiteer, or of a private capitalist, or of both.<\/p>\n<\/blockquote>\n It wasn\u2019t a lawless hand; it was the invisible hand. Lenin\u2019s subtle but profound amazement reveals the flaw in the Chinese model: the machine refuses to obey the party that guided it.<\/p>\n The term internal contradiction<\/em> is mostly used in Marxist literature, but it\u2019s well-suited to explain what\u2019s happening in China and other state capitalist countries. There\u2019s an inherent paradox in the Chinese model \u2014 after a while, the vague distinction between market and state stops working. One of Xi\u2019s favorite sectors is the public-private partnerships: firms that aren\u2019t fully state-owned or privately owned, but a mixture. In theory, they aim to capture the productivity and efficiency of the free market, but at the same time, they resist the mission-indirection that is inherent to market processes. <\/p>\n This is the core contradiction. The productivity and efficiency of the private sector are possible only through risk-taking \u2014 betting on an unknowable future. That\u2019s why Frank Knight argued that entrepreneurial action is tragic at heart \u2014 it is uncertainty. And the sad truth is: most entrepreneurs fail. According to the US Bureau of Labor Statistics, 49 percent of new businesses fail in their first five years. But this failure is as important as success. It\u2019s what makes economic growth possible. As Ludwig von Mises wrote<\/a>, \u201cIt is profit and loss that force the capitalists to employ their capital for the best possible service to the consumers.\u201d Without loss, there is no discovery. Without discovery, there is no innovation.<\/p>\n The \u201closs\u201d part is what guides us. But the Chinese model \u2014 and all state capitalist models \u2014 seek to eliminate loss, through regulation or planners\u2019 \u201cwisdom.\u201d They want an economic system that doesn\u2019t fail. But what we get is the vanishing of CEOs and chairmen. The internal uncertainty embodied in the market cannot be solved with government regulation and planning. Uncertainty should be embraced rather than tamed, because it deals with known unknowns and unknown unknowns. Only epistemological humility can help us navigate it, not attempts to play God.<\/p>\n Although the Chinese model is showing its weaknesses \u2014 from vanishing CEOs to shrinking growth<\/a> \u2014 it seems the world is moving toward state capitalism. As Ilias Alami and Adam Dixon argue in their book The Spectre of State Capitalism<\/em><\/a>, this is a global phenomenon, not confined to China and Asia. Since 2000, the scales of the mixed economy have tilted toward the state. The number of state-owned enterprises (SOEs) among the world\u2019s 2,000 largest firms has doubled<\/a> over that period. These state-linked giants now control $45 trillion in assets \u2014 half of global GDP. And it\u2019s not only SOEs. The number of sovereign wealth funds<\/a> (SWFs) has increased sixfold in the past two decades. As of 2024, 176 sovereign wealth funds operate worldwide. By 2023 figures, they control $11.8 trillion in assets \u2014 more than any hedge fund in the world.\u00a0<\/p>\n The world is drifting toward greater statism \u2014 a trend that is far from new. As Milton Friedman put it in one of his final speeches<\/a>:\u00a0<\/p>\n After the fall of communism, everybody in the world agreed that socialism was a failure. Everybody in the world, more or less, agreed that capitalism was a success. And every capitalist country in the world apparently deduced from that what the West needed was more socialism.<\/p>\n<\/blockquote>\n His remark captures the irony of our time: even in victory, capitalism is retreating.<\/p>\n The double-digit inflation of the COVID era, the productivity puzzle in the West, shrinking growth, and vanishing CEOs in the East are all signs of the failure of the state capitalist model. But we can\u2019t overcome this new statism until we change the climate of opinion. The challenge is that this model is portrayed as \u201cneoliberalism\u201d or \u201ccapitalism.\u201d At least with postwar statism, everyone agreed it was statism. But not this time. If you read the so-called critiques of neoliberalism, it sounds like we are living in Nozick\u2019s Utopia<\/em> \u2014 but we\u2019re not. The evidence is quite clear, and we must understand this new statism in order to overcome it.<\/p><\/p>\n The post China\u2019s Disappearing CEOs and the Flaw of \u2018State Capitalism\u2019<\/a> was first published by the American Institute for Economic Research (AIER)<\/a>, and is republished here with permission. Please support their efforts.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Imagine you are working as an investment banker in one of China\u2019s most famous companies. Everything is going well \u2014 a high-paying job, good social status, and finally, you\u2019re making money from the math you learned in university. Then, suddenly, your CEO disappears! This is what happened in China.\u00a0 Bao Fan, a Chinese billionaire and …<\/p>\n","protected":false},"author":507,"featured_media":2324418,"comment_status":"close","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[],"class_list":["post-2457355","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2457355","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/users\/507"}],"replies":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/comments?post=2457355"}],"version-history":[{"count":1,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2457355\/revisions"}],"predecessor-version":[{"id":2457356,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2457355\/revisions\/2457356"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media\/2324418"}],"wp:attachment":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media?parent=2457355"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/categories?post=2457355"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/tags?post=2457355"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\u2018The Machine Refused to Obey\u2019<\/h3>\n
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The Internal Contradictions of State Capitalism<\/h3>\n
The Future of State Capitalism<\/h3>\n
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