China's real estate syndrome

By Daniel Wagner
0 CommentsPrint E-mail, December 24, 2010
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Defying gravity [By Jiao Haiyang/]

Does it quack like a duck?

If something looks like a duck, walks like a duck and quacks like a duck, it is usually a duck – except in China. In China, you can have 30 billion square feet of unused office and residential capacity – the equivalent of 23 square feet for each of China's 1.3 billion people – and the "China can do no wrong" crowd will call it evidence of a permanent long-term boom. In most countries, that kind of excess would be called evidence of an imminent collapse. Not in China.

Western pundits are divided about whether such statistics foretell continuation of China's perma-boom or imminent collapse, but China is a country where market forces have less impact than the will of the Chinese government, so the boom should remain sustainable as long as the government says it will – or ensures that it is. In a country that needs to grow 9 percent per annum just to keep up with the ranks of new entrants into the job market, and that had an average growth rate of 10 percent over the past decade, a long-term boom prediction may just be right, even though official statistics may be suspect.

If we have learned anything about China since it adopted "socialism with Chinese characteristics" in 1993, it is that the country has defied all conventional logic and reasonable predictions about how it would grow and come to impact the global economy. One benefit of being an authoritarian government is that it doesn't have to care what its people, or the rest of the world, think. Thus far, the government has done a stellar job of keeping the juggernaut that is the Chinese economy humming.

It has naturally made mistakes along the way, just as every other government has, but at the beginning of the current economic crisis the Chinese government acted like the bastion of fiscal conservatism when compared with the US Federal Reserve. Although the Chinese government can certainly be criticized for its heavy hand, it can also be argued that the heavy hand is what has enabled China to weather the crisis relatively unscathed, and to continue to do so. The world has become dependent upon China to drive the global economy, so we should all wish the government well in its task.

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