In my first few hours back in Shanghai, I am newly amazed by the scale and pace of the building, of the ambitions, of the problems, and of the range of Chinese dreams realistic and fanciful. More on that after some sleep. For now:
1) From John Berthelsen of Asia Sentinel, this "Chart of the Day," showing the role of construction outlays in China's overall investment picture. The blue line is construction investment; the red line is total fixed asset investment; and the scale appears to be rate of increase year-on-year.
As Berthelsen says (in a note to me) about the pattern shown here, "You can see how construction spiked earlier this year as the government seeks to construct its way out of the current slump. Since they announced a flock of accelerated construction projects [this week], it should spike back again." I did an Atlantic article on the previous spike, in 2009, while still in Beijing.
One of the big themes in my new book is that the Chinese development model of the past 30 years has been very heavily reliant on the "when in doubt, build something" strategy. In the short term, this approach certainly keeps people employed -- and enriches others through real-estate transactions. In the medium term, it creates infrastructure that can help the country grow (subways, ports, the 100+ airports under construction). And in the long term, even some of the apparent white elephants and "ghost cities" may eventually be grown-into as Chinese demand goes up and up.
But too great a reliance on construction and real-estate boosterism creates various follow-on distortions, as I'll spell out another time. For now, thanks to Berthelsen for the chart.
2) In case you haven't seen it, it is worth reading this article from Arthur Kroeber, at Foreign Policy, on the China trends that are really serious and those that will probably take care of themselves. Sample:
No question, China has many problems. Years of one-sided investment-driven growth have created obvious excesses and overcapacity.... Is China's legendary economy in serious trouble?
Not just yet. The odds are that China will navigate these shoals and continue to grow at a fairly rapid pace of around 7 percent a year for the remainder of the decade, overtaking the United States to become the world's biggest economy around 2020.... Considerably less certain, however, is whether China's secretive and corrupt Communist Party can make this growth equitable, inclusive, and fair. Rather than economic collapse, it's far more likely that a decade from now China will have a strong economy but a deeply flawed and unstable society.
This is a complex point (as Kroeber, who has been on-scene in China for a very long time, is well aware). For what it's worth, I think the environmental, social, and political tensions could become serious even sooner than Kroeber suggests -- that's part of the concluding argument in my book. And before anyone writes in to point it out, I am fully aware that modern America's version of the same problem -- "overall economy doing OK, most people not doing OK" -- is a first-order challenge to our national well-being. The main point is that it is worth reading Kroeber's essay.
3) Worried that the imbalances in US-Chinese trade and investment flows leave the United States helplessly at China's whim and mercy? You might want to consider how the picture looks from the perspective of a state-controlled nationalist paper in China, Global Times. Here is a translation of one of its editorials this week:
"Sino-U.S trade not equal and mutually beneficial (pg 15)
"No matter from what point of view, China is more dependent on the U.S. than vice versa. As long as there is an asymmetric dependence, there can be no equality or mutual benefit.
"Over the years, the United States has used dollars to exchange for China's real resources, goods and services. However, with this greenback or electronic symbols, China is not allowed to purchase real U.S. assets but rather U.S. dollar denominated securities and treasury bonds to support the U.S. economy. With the dollar's depreciation and inflation, China's foreign exchange reserves continue to shrink. Is this equal and mutually beneficial?
"The United States at every turn uses its domestic law to impose anti-dumping and countervailing duties on products made-in-China, implementing "special protection." Is this equal and mutually beneficial? Ford, Wal-Mart, Goldman Sachs and other U.S. companies can drive straight into Chinese market, while CNOOC, Huawei were long shut out by the U.S. Is this equal and mutually beneficial?"
One other immediate reaction on this trip: the rediscovered annoyance of dealing with a firewalled Internet, even in the most modern hotel I have ever stayed in. (Yes, I realize that this is a country-level rather than hotel-level blocking scheme; I just am referring to the incongruous mix of hyper-advanced luxury technology and hyper-backward internet access.) Something has happened so that my old VPN provider now appears to be blocked. A project for later in the day.
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