Dror has written another provocative post about China’s economy that is well worth a read, even if I don’t completely agree with him. It’s about an issue many of us reflexively shy away from, i.e., the true sustainability of China’s boom, and the West’s refusal to acknowledge the possibility that much of the boom is smoke and mirrors. As Dror points out, there seems to be something irrational about leading economists writing in all seriousness about a recovery, for example, in China’s real estate industry when so many huge half-built and empty new structures dot the skylines of most of its cities (Chongqing seems to take the cake for this one but Beijing seems determined to catch up). And yet new malls and luxury housing are still being built left and right. Should they count as proof of China’s booming construction business and overall growth? In manufacturing, over-production and sometimes really bad production (dry wall and melamine toothpaste) are often par for the course, though on paper the results may look impressive – people are employed, factories are busy, production is rising.
On the other hand, China’s manufacturing has gone far beyond shoes and toys and they now make most of the electronics we’re buying, and increasingly the more complex items like sophisticated semiconductors. Many of their factories are truly world class (and I know, many are not). They seem to be serious about correcting their environmental mess (if not, they’re doomed). The infrastructure improvements in many Chinese cities are as impressive as America’s. And while I agree with Dror that consumer spending won’t start until the masses are assured they don’t need to save every cent for healthcare and education costs, there’s still a massive amount of money being spent here by a rising middle class. While the dream of 1.2 billion customers is exactly that, a dream and a fantasy, even if it’s just 400 million customers it can be one of the world’s most robust markets.
We all know the downside, the environment, the impossible problems, the corruption and the crimes of the government. But there is still enough change and progress that is real here to justify a lot of attention from the West, and everywhere else. As I quoted James Kynge in an earlier post:
It must be said that from a global perspective, China’s emergence is of enormous economic benefit. The value created by the release of 400 million people from poverty, the migration of over 120 million from farms where they perhaps raised chickens to factories where they churn out electronics, the quantum leap in educational standards for tens of millions of children, the construction of a first-class infrastructure, the growth of over 40 cities with populations of over a million, the commercialization of housing and the vaulting progress up the technology ladder have helped unleash one of the greatest ever surges in general prosperity.
Before anyone jumps on the quote with evidence to the contrary and the laundry list of reasons why China cannot succeed, please go back and read the entire post – this is one of many quotes, and all those problems are acknowledged. Kynge is not looking at China like a wide-eyed and naive child, and he sees much of what Dror sees. But he believes China will continue to “shake the world.” And “shaking the world” is not necessarily a good thing; in fact, it can be pretty awful. But China has the leverage, the tenacity, the ambition and the government coffers (and government protectionism) to shake the world for many years to come, so I suggest we get used to it and think about how to deal with it rather than denying it.
A part of me says those husks of buildings looming over us and the warehouses full of unbought refrigerators and dysfunctional state-owned businesses that employ millions of unnecessary workers – it all has to catch up with them and plunge them into a far worse crisis than they expect. Like China’s recently collapsed “modern art” industry, I see many, many of bubbles in Chinese construction and manufacturing. The structural deficiencies in the Chinese system are as deep and as many as the structural flaws in the Three Gorges Dam. But at least for now, the dam keeps operating, and China does too.
Fragile, improbable, sometimes absurd – yet in its own surreal way China “works,” no matter how much of its success is built on corruption, protectionism and/or Western self-delusion. If you write it off and conclude it is not a real, dynamic and ever-present force in global economics and politics, you do so at your own peril.
Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.