amit wrote:Very good arguments Chola.
However, one point: Nothing exists in vacuum. I don't see how a China sans institutions - which allow the release of public frustrations - can keep on building infrastructure the way they are and in the process make large sections of their populations impoverished (and these are the educated people who have the money to invest in speculative buying of housing) and still be able to keep the lid on discontent indefinitely. IMO somethings got to give. Already there are a lot of anecdotal reports of massive protests in various interior parts of China it will take little for all that to snowball.
As I said before. I don't expect China to keep the lid on for eternity. But I do hope they can hold on for a few decades. Those lack of institutions is what will allow India to catch up. A colored revolution in China will bring in the US and in no time, we'll see China in the American mode. A democratic China with anywhere near the efficiency of a Taiwan, Hong Kong or South Korea, never mind Japan, we will most likely never catch up since they are already three times wealthier.
Also another point you make, that of 80 per cent of the Chinese people wanting to be urbanised over the coming decades doesn't sound right in terms of numbers. According to the
CIA Factbook in 2008 43 per cent of China's population was already urbanised. And according to
Reuters by as early as 2015 more people will be living in cities in China than in rural areas.
Sorry. I might have been using earlier numbers stuck in my brain from my heydays as an analyst. I show know that. At any rate, even at 43%, you are talking about astronomical numbers. With 1.3 billion, 43% equals 559 millions. Even if half of that become urbanized, you are talking about a population as big as the US. I sincerely doubt that China has anywhere enough modern housing for that many people. Remember, people are trading in literally caves and mud huts in some regions. We must not forget that vast areas of China are as poor as Africa or Bihar.
I don't think there was ever any major infrastructure project undertaken in the US or Japan which did not have a sound business case (again we come to the all important RoI) to push it.
Actually, most major infrastructure projects in the US or Japan made no sound business sense if business sense means dollar profits in the immediate future. The US Interstate system never came close to being paid for by the pittance in tolls it collected. They were collected locally for state governments any way. Most bridges took decades to paid back if ever. Nearly all subways systems in the world are subsidized.
That is why government built infrastructure. They are the usually the only ones who can wait decades for the money to begin rolling in or ever.
In China what's the business case of a city like Ordos which has been lying empty for close to a decade?
I was always skeptical of the empty town idea. No country, especially not a dirt poor one like China, is able to haphazardly build empty towns just for the heck of it. I looked it up and found this:
http://blogs.wsj.com/chinarealtime/2010 ... -of-ordos/
Revisiting China’s ‘Empty City’ of Ordos
Famously dubbed China’s “empty city” in a November 2009 report by Al-Jazeera English, the town of Ordos in Inner Mongolia has become the favored example of those convinced that China is in the midst of a runaway property bubble unmoored from reality.
The town’s mostly uninhabited new district of Kangbashi is now routinely cited by bearish investors, and got further unfavorable coverage in a photo essay and article in Time magazine earlier this year.
Bank of America-Merrill Lynch economist Ting Lu decided to pay a visit to Ordos to see for himself, and detailed the result in a fascinating report this week. He did indeed find a city that is, at least on weekends, largely empty.
But rather than the poster child for a national property bubble, Lu sees Ordos’ economic circumstances as mostly unique, and largely caused by the huge wealth it has reaped from its wealth of coal. In fact, he argues, the city is an interesting example of how a resource-rich area has fairly successfully handled the enormous windfall it has seen in recent years, and avoided the “natural resource curse.”
Once poor, Ordos has been blessed by the commodity boom: It has one-sixth of all of China’s coal reserves, and one-third of is natural gas reserves. Its gross domestic product has grown a “staggering” 25% a year over the last eight years, Lu reports, more than twice as fast as the national average. The city may well be the richest in China: Its per-capita GDP of $21,600 is more than twice than of Beijing, and is likely under-reported.
“Blessed by rich coal reserves, Ordos cannot resist the temptation of lavish government projects, but it has escaped most of the classical curses of natural resources by reasonably allocating the windfall gains,” Lu says.
“Blessed by rich coal reserves, Ordos cannot resist the temptation of lavish government projects, but it has escaped most of the classical curses of natural resources by reasonably allocating the windfall gains,” Lu says.
Rather than sit back and watch newly-wealthy locals put their money elsewhere, the local government has tried to keep the coal wealth closer to home. In 2003, as the coal boom took off, it started planning for a much bigger city, of up to 1 million people. The old town was expanded, and an entirely new urban district, called Kangbashi, was built from scratch, designated the administrative capital and expected to house up to 300,000 people. The plan mostly worked.
“Its strategy is to invest massively in local infrastructure and urban expansion to attract coal bosses to buy local properties,” Lu says. “In this regard, Ordos has been successful. The old town has expanded three-fold over the past decade and homes in the new town are all sold out.”
The main reason why Kangbashi is empty seems to be a planning issue: The new town is 25 kilometers from the old town, which has discouraged people from moving. Though a government official may work in the new town, his family may have little reason to move there. With few residents, supporting services like restaurants can’t survive in the new town, which is a further reason not to move there.
Why is the new town so far away? Lu says local officials said the main reason is to be close to rivers – the old town is chronically short of water – and to another mining town, Yulin. Local residents have been happy to buy houses in the new district – Lu says a new development sold out in a couple of days just before his visit – but local officials are still trying to find ways to encourage people to actually move into their houses.
“We found a brand new but empty city, but reporters could easily distort the overall picture, exaggerate problems, and overly generalize findings. In fact, Ordos is very unique – and it is quite misleading to assume what happens in Ordos could happen in other parts of China,” Lu says.
– Andrew Batson
There is no doubt overbuilding to some extent. I just can't imagine an overcrowded nation of 1.3 billion would ever have empty buildings over time. Anyone who've been to the Far East and seen the entirely wretched condition of overcrowding even in wealthy places like Hong Kong and Tokyo never mind poor ones like those in China would have empty homes for long.
How can one justify the fact that China with 1/6 th the economic size of the US ( a short while ago) had more steel making capacity than the 10 countries that followed it?
Perhaps China is a lot bigger than 1/6th the size of the US. The truth is corporate America (of which I am part of) had long suspected that the Chinese market is far bigger what is claimed and had planned accordingly. GM is not the number one car seller in China, with more sales than the US, by chance. It is the biggest market for good old American fried chicken with KFC making more profit in China than the US.
We don't know if the average Chinese citizen is a tax cheat but the amount of American midsize and German luxury sedans bought every year points to an economy far bigger what it supposed to be. In fact from consumption figures, China is treated as an American sized economy for a wide range of companies. Corporations don't care about apparent GDP size but they do care about sales.
Consumption of steel and cement might simply reflect a much bigger economy than GDP figures show just like cars and chicken.
That said, it might make absolute sense for an undeveloped nation to build infrastructure at a much higher rate while a wealthy nation is already saturated with infrastructure so needs less of it.
