From the Wall Street Journal today:
A $91 billion industrial project here, mired in debt and unfulfilled promise, suggests part of the reason why China’s economy is wobbling â and why it will be hard to turn around. The steel mill at the heart of Caofeidian, which is outside the city of Tangshan, about 225 kilometers (140 miles) southeast of Beijing, is losing money. Nearby, an office park planned to be finished in 2010 is a mass of steel frames and unfinished buildings. Work on a residential complex was halted last Christmas, after workers completed the concrete frames. There is even a Bridge to Nowhere: a six-lane span abandoned after 10 support pylons were erected.
“You only need to look around to see how things are going,” said Zhao Jianjun, a worker at a plant that hasn’t produced its steel-reinforced plastic pipes for months. “Look north, west, east,” he said, gesturing to empty buildings. Chen Gong, chairman of Beijing Anbound Information, a Chinese think tank, says Caofeidian shows the flaws of the Chinese economic-growth model, in which the government plans investment and companies are expected to follow suit, regardless of market conditions. Chinese local governments are “driven by the blind pursuit of GDP,” said Mr. Chen.
There are reasons why I have doubted much of this “China will overtake the US and dominate the world” stuff and the details referred to above are part of it, though goodness knows state-driven mal-investment is hardly the preserve of China. Far from it. But there has been enough evidence around to suggest that vast sums of money poured into Chinese projects of this type will not bear fruit. And there will be a reckoning.
I remember several years ago Michael Jennings telling me that a friend of his had calculated that there were more recently constructed – but unsold and unsellable and of course unoccupied – houses in China than there are houses in the UK.
One of the key statistics that foreigners used to try to figure out what was going on in China was looking at the amount of concrete being produced and used in China. At the peak of the Chinese construction boom, this was more than double per capita what it was in Spain at the peak of the Spanish construction boom. This has now dramatically fallen, of course, but the financial fallout is only coming now.
Not to negate anything else said here, but none of that precludes the âChina will overtake the US and dominate the worldâ scenario. China as a State may well achieve that – the Chinese people are an entirely different matter.
If China overtakes the USA, it will be more due to the USA’s vast Ponzi scheme of state spending causing it to go bust (ie US decline) rather than China ascending.
Indeed, Perry – hence the stress on State. There’s no such thing as an absolute freedom in this day and age (or ever?), and so in the long run a society that is less unfree wins. In the shorter term and as states go, those with the bigger guns win – no way around it. Of course one may argue (rightly, I think) that a freer society tends to produce bigger and better guns too, but I think that this takes us back to the long-term discussion.
China’s vast Ponzi scheme is bigger than America’s. So China overtaking America on this basis is unlikely.
One thing that people fail to appreciate is that in some ways communist China is like the British Empire in India with a small communist party elite attempting to control a very ethnically diverse population.
Time-and-again throughout Chinese history this rule from a central authority has been attempted and time and again it has failed due to the very size of China and the lack of any genuine support for the government in the populace.
Sure they will play along and kowtow to the officials to get what they need, but there is no broad base of support for the communists or their policies. While the sun shines they will smile, nod and fill their rice bowls, but come trouble they’ll happily turf them out.
China’s instability is such that it wouldn’t take much to trigger yet another in China’s long history of civil wars.
I’ll be stunned if the nation that describes itself as China is anything more than a loose confederation of independent states by 2050, much like the aftermath of the breakup of the Soviet Union.
Don’t forget demographics. China’s working population declined in absolute terms last year. The elderly population is going to keep growing for a long time.
If the one child policy is removed today (and it won’t) and if Chinese people started having larger families (and they won’t: they’ve been brain-washed into thinking that 2 is already a lot and few Chinese families will want to have more) it will take 16 years before there is any impact on the working population, during which time the decline in the working population will have continued and (in this scenario) the non-working population, young and old, will have both increased.
China is all set for 30-40 year of economic stagnation and the only way the government can keep the people from being discontent with them is to find a common enemy to unite against. On unrelated news, anyone notice how many territorial disputes China is having with its neighbours recently?
I see no reason why China should not develop in the same way that Korea and Japan have. These two countries were (are) also corrupt and effectively one party states. No doubt there will be a financial crash or two along the way and surely one is now overdue.
China population is by a wide margin Han chinese. I don’t know if there are any ethnic sub-divisions within that, but if not then even a Han only nation would be of formidable size and power.
I came across an interesting paragraph in “How The West Grew Rich” by Nathan Rosenberg and L.E. Birdzell originally published in 1986.
“The Chinese experience allows us to conjuncture that, in Europe, the late development of a civil service, the counterpart of the mandarinate, helped hold open the way to the rise of capitalism. The difference in value observed by Needham between merchants and mandarins are very much like the later differences between merchants and Prussian, French or English civil servants. For the European civil servants the timing was wrong; they came to power too late to prevent the rise of capitalism, and their only recourse for expressing mandarin values was a gradual, Fabian exertion of authority over the aspects of capitalism not too mercurial to elude their grasp.”
Hah! Typical racial stereotyping, it’s a bit like saying the French and English are brothers of the blood because they’re all “Ang Mo” (white ghosts) with red hair and big noses!
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As with all things there are subtleties in the ethnic divisions of the ‘Chinese’. An illustration of this is the sheer number of dialects spoken by the same people.
http://en.wikipedia.org/wiki/List_of_varieties_of_Chinese
Let me suggest some further considerations (other than specific economic incidents) for thinking about the development and relative dominance of cultures in the Evolution of Civilizations.
We tend to encapsulate those developments in terms of “Nations.” Nevertheless, Nations Are Segments of Cultures.
To repeat: the culture of any social order (or groups of social orders) is determined by the motivations of its members.
In observing the developments in China, we should consider the changing motivations of the Chinese people that are at affecting its culture; considering particularly the accelerating urbanization, which at other times in other places led to the development of the bourgeoisie â whose advancements McCloskey has noted, along with explanations of the reasons therefore. We should also be observing how and in what ways the motivations of the Chinese citizenry are being transformed.
At the same time we might well observe how the motivations of the citizenry of the developed (Western) cultures have been transforming and the alterations occurring in those cultures as a result.
We would do well to compare the directions of the changes in motivations of each of the cultures before we come to conclusions about any likely outcome of continuing or future dominance. Which way are the peoples of the several cultures moving?
Since its coalescence in about 1500, we have seen the center of Western Civilization move steadily westward. We cannot be sure that it will not continue to move in that direction and away from its presence in North America.
Most Chinese stats are suspect, to say the very least, and much of their alleged development is activity without economic justification, based on political connections and considerations.
Human beings are fallible, and ideologues are more prone to error than careful, empirical actors, simply because they must fulfill the demands of their theory instead of being able to alter their plans as ongoing results indicate they should.
Authoritarians of one brand or another have always claimed some form of special knowledge, whether divine or ideological, as a justification for their assertions of legitimate authority, and their endless claims that what they are doing is successful, often in the face of clear and obvious failures.
The Chinese people, regardless of their public statements, know very well that much of their leadership’s pretended omniscience is, in fact, riddled with corruption and folly. The protests against these faults go on around the country on a daily basis, and the leadership is constantly promising one campaign after another to combat corrupt officials and heartless policies.
The very turmoil and popular shifts that seem to make democracies so weak are, in fact, signs of a resilient strength that allows major changes to occur within the system, instead of destroying it.
The oligarchy commanding China has little of this flexibility, and their brittle façade is more likely to crack and shatter than to accommodate fundamental reforms.
As we approach a similar political structure, with entrenched elites claiming more and more power over all aspects of our economic and social lives, the flexibility and “reformability” of western societies declines, and our brittleness increases.
I do not support limited government and extensive individual rights and freedoms because I care about this person making lots of money, or that corporation becoming successful or failing, or because I am indifferent to the plight of those who are not always capable of success in our complex culture.
I believe that smaller is better because less power means smaller mistakes, and smaller mistakes threaten my life less than the grandiose calamities brought about by the delusions of grandiose autocrats.
A Napoleon, or a Hitler, can plunge much of the world into brutal war, and a Stalin or Mao can condemn millions of his own citizens to death because of his demand for ideological purity.
Such is the massive power of the coercive state, relentlessly straining against any and all limitations. And, thusly, the admonition that the price of freedom is eternal vigilance.
When Macys goes up against Bloomingdales, all they can do is advertise their sale prices.
Call me crazy, but reduced prices on sneakers doesn’t strike me as particularly threatening.
Perhaps i missed something, but it seems to me that the implicit assumption in the post and comments, is that both China and the US will persevere in their current policies: in China, corporatism; in the US, increasing corporatism.
It seems likely that the winner will be the first country shifting to more sensible policies. That might be neither of the above.
VR says:
Why are “we” on that approach? Why are we moving in that direction? What does that direction of movement reveal about us?
What does that indicate about “them?” Does it indicate the direction they want to take?
Of the directions indicated in each condition, where do they take their people?
Perry, surely you cannot be intimating something about a race to the bottom!
Alisa: Well said.
I can remember when Japan was going to buy up the whole of the USA.
Antoine, that was back before we had an administration actively interested in destroying the country. We are now in the grip of someone whose goal seems to be to create Zimbabwe-on-the-Hudson (actually, -in-North-America). *sour expression*
I remain ignorant of China – so I will watch with genuine uncertainty.
As for the United States – the success of the oil and gas industry (against every obstacle the government has thrown at them) has been astonishing. It has been real (and unexpected) good news over recent years.
However, the United State remains fundamentally unsound.
Not just not a free market (it has not been a free market place for a very long time indeed) – but not even the “functional” place it was in the 1950s.
American society is now radically dysfunctional.
The “reforms” of recent decades (such as the creation of insane “entitlements”) will either be reversed or America will fall (it is as simple, and as brutal, as that).
The funny money credit economy (that was supposed to square the circle and make the unaffordable affordable) is a sham – as many people are seeing now (although some, such as Max Keiser, pretend that one could have the entitlement state if only it was not for the bankers… – which is drivel, as it is actually the credit bubble that allowed the thing to carry on as long as it has).
But, of China, I am as yet unsure.
Although a recession in China would bring on the crises in the West.
Julie –
you know you’re on to something in your comment to Antoine.
What we are probably witnessing, rather than efforts at transformation, are efforts by those who have concluded that change requires extensive destruction of what has existed in order to rebuild our society into the form they deem either desirable or acceptable.
The project is not to transform. The project is to destroy so that a different set of concepts can be put in place.
I don’t know about China, but the USA is simply going to fade away. You can replace education with indoctrination for only so long before the inevitable rot sets in.
You should check out the performance of home-schooled children vs. typical government school performance to see a disturbing trend.
Off-side, the long-term trends actually favour India, beyond 2050. It still has a growing population, so innovation is needed, and it has a federation, so Delhi is unlikely to become a rapacious center controlling everything. India had a licence system, and is now trying to dismantle it,so that is in its’ favour. Also, English, the world’s trade language, is more widely spoken in India than China (or so I read somewhere).
I’m not optimistic abt either China or India, although I think China still has slightly better prospects. India’s demographics and internal systems, such as education, is in a mess, and I fear their private sector cannot rescue it in time.
As for China? It depends on whether the central government can ride out the impending storm. If it can’t, it’s back to the post-dynasty warring states period again, with various leaders trying to ‘reunite China’, which happens ever so often…