Saturday, March 21, 2009

Spectacles of State Capitalism: Let the Construction Begin

As millions of French people are protesting against the government in Paris for job security and higher wage, millions of Chinese peasant workers are kicking off construction projects all over China. The Local governments in China are in a frantic race to get a bigger slice of the central government's stimulus package, and they are jump-starting projects even before the central government approves them.

If they cannot get the funding from the central government, they can probably get it from government-owned banks. In the first two months of 2009 alone, banks have given out more than 2 trillion yuan loans, which equals to the whole sum of 2008. In Feb., investment in fixed asset in cities increased 25% year on year. Need more evidence of a new Great Leap? Sales of construction machinery, from excavators to bulldozers, has rised more than 30% in Feb. year on year.

Some of these projects are truly long overdue, like the water facilities in Henan which just suffered a long drought. Some are more like fairetales, for example, the city of Tian Jin's plan to build a whole new ecological city on an empty barren land, which will cost billions. But you cannot say such projects are completely illusionary; don't forget Shanghai's Pudong was turned from a farmland to an international financial center. We don't know whether such projects will be of any value at the end, but at least right now they create some jobs and boost the local GDP number.

Can a nation maintain fast long-term growth by just spreading cement and steel? I'm not sure, China is adopting such a unique model of state capitalism that it's hard to draw upon any historical lessons. Yes the western property bubbles bursted, but they don't have the unconditional backing of government credit and nationalized banks.

It seems that business is as usual in the world despite the recession, the French are protesting, the US are creating money out of thin air, and the Chinese are building stuff.

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