Much of China’s economic miracle is here to stay. The country is a manufacturing powerhouse and is fast becoming a ubiquitous presence on the international financial stage. Overall this is a net positive. Millions of Chinese people have been lifted out of dire poverty, Americans are made wealthier from a more affluent China, and the possibility of war is greatly reduced by the volume of trade between us. However, we shouldn’t live under any illusions. China is a brutal, repressive society with minimal political freedom (best seen in their blatant refusal to even acknowledge that the atrocities of Tiananmen Square ever happened). There is also some doubt as to the veracity of China’s claims of economic expansion and concern over its increased reliance on credit to finance its growth. All of this fuels worries about a potential bust across the Pacific. This article from Friday is a perfect example of the kind of results that stem from the misguided planning Chinese leaders have engaged in for some time now.
The skyline of Yujiapu in the Chinese city of Tianjin looks more like an expensive, abandoned movie set than it does “China’s new Manhattan,” as the financial district was once billed. A patina of dust covers the glass doors of the 47 office buildings and hotels that still sit empty, and in come cases unfinished.
This Manhattan-style ghost city on some of the best real estate in Tianjin, a port city just south of Beijing, is a victim of China’s investment boom—and, as is increasingly apparent, its bust. Tianjin has led the debt bonanza of the last five years, loaning out money faster than anywhere else in China since the financial crisis hit in 2009.
It’s pretty hard to imagine such desolation in an area that was built so recently with such glamor and promise, but these are often the consequences of top-down economic planning that ignores basic realities like demand. As much as capitalist triumphalists like to crow about China’s adoption of free market philosophies, its model still includes a great many Communist-style state-run enterprises.
But, as of yet, there have been no serious economic consequences and China’s GDP continues to grow at robust rates (although there are good reasons to be skeptical about this for many reasons, including those found here and here). If there is a “China Bubble” and a subsequent burst we should all hope that it will be mild. The world economy cannot afford more volatility right now, nor would an event like that ever be welcome. In the meantime, alarmists should worry less about the possibility of China dominating the U.S. with padded, hollow GDP figures.