The Chinese economy reflects the ‘Vampire Economy’ Guenter Reimann described in his book about Germany under National Socialism, where ubiquitous and heavy-handed state regulation of private business was pursued to keep prices down, Sean Corrigan, chief investment strategist at Diapason Commodities Management told CNBC.
“This whole thing of suppressed inflation, if the Chinese know that the CPI mustn’t go up, they can go to a brewer or a car maker or a power company and say I don’t care what it does to the bottom line, you must not allow prices to rise and in many cases of course, they have the traction to do this,” Corrigan explained.
He added that headline inflation figures coming out of China were “not realistic of the stress in the system” and there was anecdotal evidence that pressure was being applied to small and medium sized private sector firms to offset spiraling inflation.
“So much of the news flow is controlled, so much of the data is suspect, but if you read the Chinese press that we do get translated into English, there’s an increasing litany of stories of distress, of distortions, of those problems that this top down approach is inflicting on the country, particularly on those outside the state owned enterprise sector,” he said.
Corrigan also questioned the perception that China managed its economy well compared to the West, saying centralized approaches were viewed with suspicion in developed economies.
“I think we have to ask ourselves how well managed is any economy? Can it be managed is the first question.
"In the West we tend to be reasonably skeptical of someone in an office, whether in Westminster or in the Beltway, of how well they can guide the activities of so many people.
"Yet when it comes to China, for some reason we tend to revere the central planning and assume that they can always do things that we can’t do,” Corrigan said.
On assurances from Chinese Premier Wen Jiabao that China would continue to invest in European debt and his vote of confidence that the euro zone would be able to overcome the sovereign debt crisis, Corrigan said Chinese investment in Europe was to be expected.
“The Chinese do more trade with Europe, have just as big a surplus, if not a bigger surplus than they do with the United States,” he said.
“If they know that they need to recycle money back to America so it can be re-spent, they also know they have to recycle money back to Europe, so to say they continue to invest in the euro and in some European government securities is not really much of a surprise,” he added.