China and the crisis of crisis theory
- By Heiko Khoo
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E-mail China.org.cn, April 14, 2014
Western political ideologues and neoliberal economists find this reassuring. If China's political economy is experiencing the same banking crisis that brought down the West -- just on a grander scale -- then the idea that there is something structurally superior in China's economy is disproven. Consequently the free market model is still the best possible system invented by man or God.
However, the BBC program exaggerates the influence of exports in China's growth. When export demand collapsed in 2008 and millions of workers were laid off the impact on the economy and society was short-lived. Whilst wages in Europe and America fell from 2008-2014, they rose dramatically in China. The Labor Law of 2008 significantly improved workers' rights and encouraged workers to fight to enforce the law. The Communist Party of China acted to advance workers' rights at a time when there was a big rise in unemployment. By contrast economic contraction and rising unemployment in the wealthiest capitalist countries meant ruthless wage cuts and austerity.
The BBC's tale of impending collapse is built around the myth that China's expanding debt is just like the property and debt bubble that burst in the West. As the West had a property bubble associated with cheap credit it is assumed that investment in construction and property in China is the same phenomena. However, in England and America easy credit encouraged people to take out mortgages of 100 percent or more -- mainly to buy second hand buildings. Mortgage deeds were bundled together from all around the world and sold as packages called collateralized debt obligations (CDOs) and their future prices rose stratospherically. But these deals produced no new value -- nothing was being made to back up the money. Buying or selling a house creates no value. And private banks buying debt obligations on second-hand property also creates no value. So lots of "money was made" without making anything and "fictitious capital" ruled the roost. Prices and values are not the same thing but this can be difficult to grasp; particularly by those who live by making money from money.
The empty urban suburbs in some cities in China are often presented as proof of an exploding property bubble. Surely this is just like the empty buildings of Chicago or Detroit in the USA? Of course as China is building new homes and communities for hundreds of millions of people under its urbanization plan, there will inevitably be gaps between construction and occupation. This is exaggerated by bureaucratic errors as well as speculative investment. The new rich seek to turn their cash into property assets. However, this still does not mean that China's housing market is experiencing a Western style property crash.
According to Western doom-mongers, an imminent collapse in Chinese property prices will drag down China's banks and provoke mass social unrest. In the famous ghost-town district of Kangbashi, located in Ordos in Inner Mongolia, the residency rate stands at only 5 percent of its 1 million potential. Nevertheless nearly all apartments there have been sold. So, despite a fall in prices: this won't cause a "collapse;" impoverish mortgage holders; or provoke mass social unrest. For property owners who buy apartments as an asset, the price of their property is only important if they plan to sell it or if they can't afford the mortgage.
Some simple measures by the state could eliminate China's vacant property scandal overnight. Where demand for accommodation is high, government agencies could impose compulsory management orders on lessees in order to force them rent out their property. If this is combined with state controlled rents, for fixed or indefinite terms, it can increase the general availability of low-cost rental accommodation and bring the owners some compensatory revenue. This can help maintain the property and pay the mortgage. It can also act to bridge the divide between those who can afford to lease, and those who can't afford to rent or buy. Under the 12th Five Year plan (2011-2015) the government is building 36 million apartments for low cost rental or for sale. This house-building boom for people on low-incomes also acts to replace the fall in private sector investment.
Infrastructure investment is often funded by land sales. This advances the general productive potential of society. By investing now in modern infrastructure that will last more than 100 years; China is taking advantage of its present low labor costs, to lay the foundations of a better tomorrow. The concentration of resources in urban areas brings ever improving transport, education, housing, welfare and health services, and lays the foundation for big strides forward in labor productivity. The planned integration of 100 million migrant workers into the formal urban workforce by 2020 will greatly expand the workforce and produce real new value and societal wealth. China's credit and investment boom is not a speculative bubble.
Heiko Khoo is a columnist with China.org.cn. For more information please visit: http://china.org.cn/opinion/heikokhoo.htm
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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