Saturday, January 22, 2011

China's "State Capitalism" and "Ghost Cities"

Did the power of the first, create the second? Time Magazine has this article:

Why China Does Capitalism Better than the U.S.
[...] As Western democracies shuffle wheezily forward, China's economy roars along at a steady clip, having lifted some half a billion people out of poverty over the past three decades and rapidly created the world's largest middle class to provide an engine for long-term domestic consumer demand. Sure, there's massive social inequality, but there always is in a capitalist system. (Income inequality rates in the U.S. are some of the worst in the industrialized world, and more Americans are falling into poverty than are being raised out of it. The number of Americans officially designated as living in poverty in 2009 — 43 million — was the highest in the 51 years that records have been kept.)

Beijing is also doing a far more effective job than Washington of tooling its economy to meet future challenges — at least according to historian Francis Fukuyama, erstwhile neoconservative intellectual heavyweight. "President Hu Jintao's rare state visit to Washington this week comes at a time when many Chinese see their weathering of the financial crisis as a vindication of their own system, and the beginning of an era in which U.S.-style liberal ideas will no longer be dominant," wrote Fukuyama in Monday's Financial Times under a headline stating that the U.S. had little to teach China. "State-owned enterprises are back in vogue, and were the chosen mechanism through which Beijing administered its massive stimulus."

Today Chinese leaders are more inclined to scold the U.S. — its debtor to the tune of close to a trillion dollars — than to emulate it, and Fukuyama noted that polls show that a larger percentage of Chinese believe their country is headed in the right direction, compared with Americans. China's success in navigating the economic crisis, wrote Fukuyama, was based on the ability of its authoritarian political system to "make large, complex decisions quickly, and ... make them relatively well, at least in economic policy."

These are startling observations from a writer who, 19 years ago, famously proclaimed that the collapse of the Soviet Union heralded "the end of history as such ... That is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government."


But Fukuyama also made a point about the comparative inability of the U.S. system to respond decisively to a long-term crisis. "China adapts quickly, making difficult decisions and implementing them effectively," Fukuyama wrote. "Americans pride themselves on constitutional checks and balances, based on a political culture that distrusts centralised government. This system has ensured individual liberty and a vibrant private sector, but it has now become polarised and ideologically rigid. At present it shows little appetite for dealing with the long-term fiscal challenges the U.S. faces. Democracy in America may have an inherent legitimacy that the Chinese system lacks, but it will not be much of a model to anyone if the government is divided against itself and cannot govern." [...]

While it does kick around some interesting ideas, there is much about this article that is annoying, but, well, it is TIME magazine. I'd pick it to pieces, but there are plenty of folks that do that in the comments that follow the article.

One of those comments had some links in it. I found this one particularly interesting:

Amazing Satellite Images Of The Ghost Cities Of China

It shows about 20 photos, with descriptive captions, of various new cites that are sitting empty or mostly empty. Empty houses. Empty sky scrapers. Empty streets. One city shown is said to have cost 19 billion dollars to build.

Last May I linked to an article about China's housing bubble. The article said that as much as 60 percent of China’s gross domestic product relies on construction. But if they have already built way more cities than they can actually use, then that construction will have to drop off sharply, won't it? The article also predicted the Chinese economy could "crash" within 9 to 12 months, when their housing bubble bursts.

Next month will be nine months since the article was published. May of this year, it will be 12 months. So we shall see how that pans out. But these ghost cities that cost billions of dollars... won't it catch up with them eventually?

State Capitalism may be able to do things quicker than our system, with it's checks and balances. But quicker is not necessarily better, when it's just allowing their government to make major MEGA spending blunders faster.

Meanwhile, I have to wonder what the global repercussions will be, when those Chinese Bubbles begin to burst?

Also see:

China’s “Terminal Phase” of Credit Bubble Excess

The real cost of Chinese NPLs

No comments: