Via Roger Pielke Jr, who got it from Lowy Interpreter. A commenter on Pielke’s blog writes:
I wonder how a command economy of China’s size will react when its controlled “bubbles” finally burst.
Indeed.
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The Not-so-great Malls of ChinaApril 20th, 2011 |
 12 comments to The Not-so-great Malls of China |
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Soviet Communism: lots of people, no stuff for them to buy.
Chinese Communism: lots of stuff, no people to buy it.
I’ve finished watching. Fascinating. Great link.
The victims of all this so far have been the Chinese people, whose standard of living is already lower, to pay for all this nonsense. In particular, one suspects, the people who have been making all the stuff for the Chinese export boom, who have been paid less than they might have been.
The big victims, when they stop doing this, will presumably be all the people who now have jobs building this nonsense, supplying stuff to build this nonsense, etc.
Have I missed anything very big? Probably. I await additions to my early list.
More Cargo Cultism.
We have that here too.
Btw how much China is command economy?
The victims of all this so far have been the Chinese people, whose standard of living is already lower, to pay for all this nonsense.
China has an extremely high savings rate, although the saving is intended more to pay for the future of the savers, rather than nonsense now. Some of this is that Chinese people today have very few children and grandchildren, so the tradition of younger members of a family looking after the older ones no longer really works. (Imagine, after two generations of the one child policy, a married couple might have eight grandparents to look after, by themselves). And there is no social security system. So what has happened is that the money being funnelled into corrupt banks, who loan to the well connected people that people in various levels of government or the army tell them to loan to – usually relatives of the people in government and the army. These loans go bad, but can never really be foreclosed on, because of those connections. And the people who control the construction industry are more relatives, so they benefit and profit as long as this continues happened. It’s just like the EU building and financing wind farms in Spain, except on a much bigger scale. (This has been going on for a very long time, by the way – since well before the opening up of the Chinese economy to the outside world. The state owned companies of the old communist era rust-belt were always bankrupt and always bailed out by the banks using bad loans. They have been dwarfed a bit by this new stuff, which is normal. As long as a further bubble comes along that is bigger than the old one, the old problems appear small).
Except that it has been all financed with domestic savings. This means that the wrecked banking system can be “fixed” in one simple way: high inflation. The banks’ debts (ie the people’s savings can be eroded away), and you have lots of empty cities and useless fast trains, and people who have to work until they drop dead because they have no younger relatives or savings, And because China is only half-rich when this all happens, the work they have to do until they drop dead contains a higher component of physical labour than would be the case in (say) Japan.
In particular, one suspects, the people who have been making all the stuff for the Chinese export boom, who have been paid less than they might have been.
Well, that too, at least partly through the Chinese setting an artificially low controlled exchange rate, which means that some of the wealth that has not been spent on absurd domestic projects has been rather pointlessly exported.
The big victims, when they stop doing this, will presumably be all the people who now have jobs building this nonsense, supplying stuff to build this nonsense, etc.
Yes, but these people (at the higher level in these companies at least) are also some of the principal culprits – they are making lots of money from the bubble while it continues and they have thus been some of the major boosters of the bubble. They will be screwed when the bubble pops, but screwed in the same sense that sub-prime mortgage brokers were screwed in 2008. There is a sense that the bubble will go on forever because the prophets of doom have not been right when they have predicted doom before, so the bubble just gets madder and madder (as they do).
Same principle as the West (make the average joe store his effort/wealth in magic plastic beads that you can make as many as you want and assign any real worth that you want) just a different application and far more ruthless?
Unfortunately leftist lunacy pervades these unfortunate minds.
It’s no good. We’ve been working in Beijing for years. We want to buy a property. But prices are too high. Honestly, we just afford to buy. People speculating in the market have pushed prices too high. We need the government to intervene. (smiles)
The guy living in one room in Beijing in the shadow of the apartment complex.
But it’s precisely the government intervention that has caused the problem, and he wants more of it, blame the nasty capitalist speculators!
This is a bizarre national economic version of the “Soviet Tractor production measured in tonnage” myth, the government set GDP targets and builds apartments (64 million!) to “achieve” it.
The saddest thing, and symptomatic of the problem in ordinary human terms, was the comment of the man: “We want to buy a property but prices are too high . . .. People speculating in the market have pushed prices too high . . . We need the government to intervene . . . ” when it is the government’s grand schemes and meglomania that has caused the problem.
None so deluded as those who are persuaded to delude themselves!
Great link.
One reason why there is a property boom in China is that there are very few attractive investment opportunities for Chinese citizens. It is not possible for them to invest in the UK stock market for example, due to capital controls. Given that the main alternatives to property investment are either business investment, education, cash, or bank deposits; I would say that it is rational for the Chinese citizen to consider investing in property. They already invest up to the hilt in education, business investment is not probably considered acceptably safe, Chinese banks – maybe not a great idea, cash or cash equivalents – maybe a reasonable option. And after all, is it so daft to assume that there will be an increase in demand for property in China in the future? Of course, the time horizon of the investment might not be great, and by the time the bet comes good the property might have collapsed. The best thing for the Chinese to do would be to get rid of its currency peg and let the currency appreciate, at the same time as freeing up capital controls. That would lead to savings flowing out of the country in search of better investment opportunities than Chinese property. If I were subject to the same restrictions I would probably invest in esoteric stuff like art and antiques, especially if it had any metal value.
There’s plenty of jobs in china, for those gifted with the right assets:
http://www.dailymail.co.uk/news/article-1378870/PG-Lips-Chinese-tea-plantation-seeks-virgins-pick-leaves-MOUTHS.html
P.S. My smitten ratio is 3 of 4 today, am I doing something wrong ?
So that’s where Lipton gets their name from is it Ian F4 ?
Crony capitalism ultimately didn’t work for Japan, and it’s failing in the USA. I see no reason why it should be expected to work for China.
China is the last hope of the establishment – it really is the last hope (there is no other).
If the Chinese economy turns out to have a massive credit money bubble (and I just do not know whether it has or not), then it is all over for the establishment.
Not just in China – but everywhere.