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Ian Bremmer, founder of the Eurasia Group, is a political risk expert. Investors all over the world pay big bucks to hear his views on what various governments might or might not do. At the moment, he is in Japan--just one stop on a tour visiting clients. Bremmer says:

Everywhere I turn on this Asia trip, folks have been pressing me with their concerns about the deterioration of the U.S.-China relationship...and what it means for them.

Indeed, the relationship between these two key countries appears to be deteriorating rapidly. I've written before about the looming trade war brewing between the U.S. and China. America is pressing China to revalue its currency and Google is threatening to leave China entirely.

But the Chinese are also flexing their muscles against other nations. They have detained an Australian businessman who works for Rio Tinto (RTP), accusing him of taking bribes.

Bremmer is the author of several books. Three years ago, he wrote the "The J Curve: A New Way to Understand How Nations Rise and Fall." A year ago, he wrote "The Fat Tail: The Power of Political Knowledge for Strategic Investing."

His newest book, which comes out in May, sports a title that is anything but subtle. It's called "The End of the Free Market: Who Wins the War Between States and Corporations?" No doubt, you can make a good guess at the answer to that question.

In the Introduction to his newest book, Bremmer begins with another question--one posed by a Chinese diplomat during a meeting that took place in the midst of the global financial crisis. The diplomat asked Bremmer,

Now that the free market has failed, what do you think is the proper role for the state in the economy?

There is no denying that in almost every country, government is exploiting the recent crisis by assuming a bigger role in the economy. This is true even in the U.S.--once considered a bastion of free market capitalism. The U.S. government now owns substantial equity stakes in formerly blue chip companies, and it is getting involved in everything from strategic managerial decision making to executive compensation.

However, as Bremmer explains, the free market has not failed and we are not witnessing a resurgence of communism. Instead, what we are seeing is a new system called state capitalism. It is a system in which governments use capitalism and free markets to advance their own power and interests.

Bremmer's book does not focus on China or the U.S. alone. In fact, it provides an excellent around-the-world tour of almost every country that has an economy of any meaningful size. All investors, professional or novice, who are looking for global diversification, will benefit from a careful read of the insights provided in this book. Nonetheless, the most interesting and fascinating portions of the book focus on the world's largest and fastest growing economies.

That includes China. The book does an excellent job of explaining how the Chinese government uses state-controlled companies to advance its policies. It uses its power to make sure these companies have every possible advantage. In this way, the government is literally engineering China's development.

As communist governments collapsed all over the world, communists in China maintained power through brute force, best exemplified by the quashing of the Tiananmen Square protests. Yet China's communists also understood that command economies could not effectively compete against free markets. The trick, as far as they were concerned, was to grow the economy while maintaining political control. Their solution was state capitalism, an ideal that has spread around the globe--even to the U.S.

Source: On Ian Bremmer's 'The End of the Free Market'