Today we’ll be looking at a few of the upsides of these projects, and why they are for the most part appreciated by the people, despite the corruption and problems these vanity projects can cause (read my updated post on some of the problems).
Jobs
As the US entered the recession questions were raised about Keynesian economics, could gov’t spending really be the answer? While we battened down the hatch for another long debate as to whether or not it might be effective, and then moved on to how much to spend, China pushed ahead with massive spending.
While the long-term results are unclear (10 trillion rmb in local debts is worrying), the immediate benefits were obvious. Not only did several cities launch plans for expanding desperately needed mass transit, but thousands of locals got jobs that made up for factory closings. To date this has helped keep unemployment lower than we have seen in the US.
note: unemployment in China is incredibly difficult to measure, since a laid-off factory work from the countryside simply gets re-listed as a farmer.
This floating population of 221 million people rely on these projects for work, and the gov’t knows that keeping this segment of the population employed is key to maintaining stability. Each of these massive projects also come with unending upkeep, the new High-Speed Rail for example employs more than 1,300 “guards” just to keep an eye on the track (they are positioned every 1km all the way from Shanghai to Beijing).
Ultimately most of the wages paid out for these projects trickles down to the countryside, that now functions largely on remittances.
Access
While we have been focusing largely on China’s more ambitious projects, it is important to note that China only recently completed the backbone of its national highway system in 2008. These kinds of projects (unlike bullet-trains), are effective in improving the standards of living for large numbers of people.
While they don’t get many headlines overseas, these smaller projects are really the most important. As I discussed in my post on Longzhou, the fact that we were bypassed by the freeway meant shifting from a key town to a forgotten backwater. Freeways mean that local people can get their goods to market, and are necessary for factories to even consider establishing new plants an a region (this is not without new problems).
Opportunities
Finally, and perhaps most importantly, these projects give Chinese state-owned enterprises (SOE’s) a chance to demonstrate to the outside world their abilities. China’s companies are building dams, freeways, and trains throughout the world (largely in South America and Africa, but spreading to Europe and the US). These projects help bring more money back to China, and should be considered when discussing the costs of some of the projects (although often the money ends up in the pockets of these company’s leaders).
In the past week there were two major pieces of news corresponding with large-scale projects. The worrying piece of information was that a Chinese company had massively underestimated the cost of constructing a freeway in Poland. The Chinese company complained that material prices had unexpectedly increased, and that the standards were higher than they had though. The company had to forfeit the contract, and is barred from bidding for another two years.
On the other hand, a Chinese company today completed the construction of a bridge for California, they completed their work 5 months ahead of schedule. The company opted to make a name for itself, instead of seeking profits on this project. One step they took to ensure quality was requiring their employees to get US qualifications in welding. It was loaded onto ship this morning, and will later be assembled by American workers.
These projects (and future ones) are worth hundreds of millions of dollars, and are helping to grow China’s GDP, but only time will tell if they were worth the cost.
Failing buildings and corruption are seen as “problems” only in your eyes. Their perceptions is completely different in the eyes of Chinese government officials. Every failed building needs to be rebuilt into some other building, creating opportunities for GDP grow to meet their annual target, create jobs to reduce social unrest, opportunity for boasting when completed, and great source of income during selection of planner, designer, construction company, decorators, tenants. Are there opportunities like these in the US, and do you see why China is beating US in the economics game now ?
I covered this side of GDP manipulation in “China’s GDP doesn’t mean what you think it does” (http://seeingredinchina.com/2011/02/22/chinas-gdp-doesnt-mean-what-you-think-it-does/)
As we are seeing now with these massive local debts that there will come a point when China cannot afford to build these projects if they don’t last. Some are already questioning if the HSR track will last long enough to recover its cost.
This debate is long old but I thought I’d add to it. It seems that erecting condo buildings with short life spans is a waste. Yes, it creates jobs in the short run & boosts GDP, but they’ll need replacement sooner than otherwise; this requires more energy, money, resources…
A little anecdote on employment and waste: During a visit to China, Milton Friedman observed the lack of heavy equipment used in digging projects and asked why. “Because we want more people working,” an official told him. “Well,” thought Milton, “why not just give them spoons?”
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