Friday, June 15, 2012

More Holes to Fill

Interesting to see that even in China some are getting wise to the folly of the Keynesian game of pumping up economic growth through government spending. Local officials play make-and-break game:

Like most of my fellow citizens, I used to feel proud as I saw China's GDP figures edge up to overtake one country after another - Italy, Britain, France, Germany and Japan. It seems inevitable that the country will surpass the US in "overall economic strength" in the foreseeable future. I never bothered to delve into what was actually behind these dazzling figures and how they had been achieved. I just saw them as a magic wand with whose touch China has metamorphosed into an economic superpower. It reminds me of what hormones do in turning a thin and weak teenage boy into a brawny and masculine young man.

That sense of pride has gone. Thanks to some local government officials, I have started to look at GDP from another perspective and see the ugly side of it.

Take Shenyang for example. The capital of Liaoning province set a national record early this month by blowing up an 800-million-yuan ($125.57 million) stadium - once the largest in Asia - to make way for a central business district. The 380,000-square-meter all-steel stadium, with a soccer field and 36,000 seats, was put into use just nine years ago. Now it will be remembered as the largest single building ever erased with a bang of dynamite in China.

The city government cited poor management of the stadium, which had basically "left it abandoned", and said its demolition will ensure "efficient use and development of land resources". What they forgot to mention is that despite the world's economic woes, the city's GDP figure will surely continue to surge thanks to this cycle of demolition and construction.

Today China is the world's largest construction site. It guzzles nearly half of the world's total annual cement and steel production, and produces 2 billion square meters in newly added building space each year. But according to Qiu Baoxing, vice-minister of construction, most of China's buildings will stand no longer than 30 years, as compared to more than 100 years in developed countries.

I don't know how much of our GDP comes from this make-and-break game played by some local officials. But I do know it not only wastes resources and causes irreversible environmental damage, it also inevitably provides a hotbed for rampant corruption. It's been said that "there is at least one corrupt official for each kilometer of highway built", after 62 officials in Liaoning were convicted of corruption in 2003 relating to the construction of a 50-km highway linking Shenyang and Shanhaiguan.

But it is a game some officials like to play because it boosts local GDP, which has long been a key criteria for promotion, despite Beijing's repeated calls for green growth.

In some ways, China’s cycle of government funded projects that build, break, and then build again is exactly what liberals would like to see take place in the United States if they had their way. The question for China is how long they can continue to keep playing the game.