The Black Market Always Wins… Even in Communist China.

November 18th, 2011

Imagine you’re a 26 year old high-school dropout working as a factory grunt for a measly $100 a month. And that’s 2010 dollars, not some distant past when that was worth something. You’d probably be pumping your fist against the bourgeoisie in your Che Guevara T-shirt down at Occupy Wall Street right now. But what if you knew that just 6 years later, if you played your cards right, you’d be managing your own factory employing more that 100 people? And what if this wasn’t some economic miracle, but it was a normal occurrence for enterprising young entrepreneurs? Wouldn’t you want to know how it was possible? Well the answer is the black market. 

See, that’s a true story. It happened to Cai Shuxian, and it happens to many entrepreneurs in Wenzhou, China where every road eventually leads back to the company that built it. The saying goes among the Wenzhounese, “the mountains are high and the emperor is far away” because for the past 30 years private citizens have virtually nullified government central planning simply by ignoring it, and the government just doesn’t have the resources to crack down. Private firms now build roads, bridges, highways, and even airports to bring their goods to market, and even though it’s not always pretty it is crudely efficient. There’s still a taxation bureaucracy, but tax evasion is typical, even routine. The primary role of local government has been to protect the city from higher levels of government.

When state-run banks became averse to lending to small private enterprise citizens of Wenzhou developed an underground financial system of their own. So called, “gray-market” lending, though technically illegal, is used by nearly 90% of individuals and 60% of companies according to official figures from the People’s Bank of China (China’s central bank). Non-bank lending of venture capital has been the single most important development to the economic success of Wenzhou, and that combined with a blasé disregard for regulatory laws has produced a business environment that borders on market anarchism.

So what’s been the result of this laissez faire pearl in the heart of Communist China? Wenzhou is the wealthiest city in the wealthiest province in the country. Unskilled workers are paid the highest wages in China, and that’s by official figures. The locals estimate wages are 20-60% higher than the officials will admit.) In fact, in the last 30 years the GDP of the city has multiplied about 20,000%. No, that’s not a typo. That’s four zeros. The city’s GDP went from 1.32 billion RMB (about $200 million) to 252.8 RMB (about $40 billion). The net per capita income for rural residents increased from 113.5 RMB to 10,100 RMB. Streets are lined with family merchants selling everything from baby clothes to raw materials. Even the poorest of residents earn an income in what’s been called the largest citizen-run recycling program in the world, collecting scrap metal, fabric, cardboard, paper and anything else that can be sold back to manufacturers.

Prompted by Liberation Daily, a paper sponsored by the Shanghai Communist Party, the city has been visited by 15,000 government officials, not to impose state regulations, which has proven futile, but to learn. If they are paying any attention at all they should probably be reevaluating their commitment to communism.

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About the Author: Davi Barker

In grade school Davi refused to recite the pledge of allegiance because he didn't understand what it meant. He was ordered to do as he was told. In college he spent hours scouring through the congressional record trying to understand this strange machine. That's where he discovered Dr. Ron Paul. In 2007 he joined the End The Fed movement and found a political home with the libertarians. The Declaration of Independence claims that the government derives its power “from the consent of the governed." He does not consent.

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