The Law of Unintended Consequences in China

China has a controlled economy. Well, some parts are controlled. Well, it tries to control them. The current situation illustrates the law of unintended consequences flow through.

The basic problem?

Sufficient power is not being generated by the power plants.

Why aren't they generating enough power?

Well, because power prices are controlled.

Why are power prices controlled?

Because in general, prices are going through the roof in China and the Communist controllers do not want inflation to go unchecked. They have to keep the great unwashed herd quiet, and there is nothing like inflation to get people excited. So they control prices.

But whose prices are not controlled?

Coal.

So what is happening to the coal price?

It is going through the roof and becoming very expensive. I quote:

"Global coal prices, in the meantime, have soared in recent months, by 50-60 per cent, with the largest rise occurring in recent weeks because of the Australian floods."

So why is that important?

Well, most of the power generators in China use coal to generate power, and if the final product - power - is price controlled and the inputs are not, then this happens: I quote:

"Against this background, power companies have been refusing to pay the prices they negotiated with the coal companies earlier this year. And the longer the delay in honouring these contracts, the higher the asking price for coal."

So, no coal, no power. Welcome to a controlled economy. What happens to inflation?

Well, that's still going to go through the roof. I quote:

Snow battering central China has dealt an "extremely serious" blow to winter crops, a top agriculture official warned Thursday, raising the likelihood that future shortages would exaggerate already surging food prices.

See here for what happens when food prices are too high. This is becoming a serious world problem.