China’s Global Economic Leadership is a Fable, by al fin. If you’ve got 15 minutes this is a very good background piece on the Chinese economic phenomenon:
China is aging, wages are rising to uncompetitive levels, capital is fleeing, and the CCP is propping up a bubble economy that is losing ground.
From The Surest Measure of How China’s Economy Is Losing, by Derek Scissors:
There are data, grounded in real-world calculations, that show China’s economic importance falling — not rising slowly, nor staying stable, but falling. The most important indicator is net private wealth, which is the single best measure of a country’s economic size and of the pool of resources available to its public sector for military or social spending. … China’s level of private wealth actually fell from mid-2015, both in amount and in share. …
For decades, China has reported much faster growth in gross domestic product. … But GDP shows activity, not prosperity. For example, if a building is built and torn down over and over, every senseless iteration adds to GDP.
In China, everyone apparently gains from constructing shoddy buildings, often not using them, then tearing them down again. From al fin again:
In China, land is owned by the government. The government only makes money when land is leased for new construction and from the “up-front” full tax payments from real estate sales. So the more often the land can be recycled in a build – demolish – build cycle of endless reconstruction, the more money the government can make from land leases and property taxes. So buildings are only designed and constructed to last between about two decades.
Seen in this light, huge Chinese “ghost cities” make perfect sense, as long as the massive credit stimulus behind this perennial construction boom can be kept alive.
From China’s ‘disposable cities’ are not built to last, by David Hatch:
“Everyone seems to profit from these “disposable cities,” he writes. Contractors and developers save money by cutting corners on building materials, labor and craftsmanship. The Chinese government buys back properties to resell to developers. The steady demolition and construction helps to inflate employment levels.”
Read it all.
