Home > Development Economics, Fiscal Policy, Growth > Chinese growth = blow up bridge and rebuild it.

Chinese growth = blow up bridge and rebuild it.

Another very useful clip from Paul Solman of PBS News. China has for quite a few years now gone down the route of government planning to keep economic activity buoyant. Assumptions have been made that in 10 years time there will be 200 cities in China with over 1 million people and 8 being over 10 million. However a recent blog post showed that there are ghost towns in certain areas of China with empty housing estates.

An example of artificially creating growth, as well as building ghost cities, is have a 7 year old bridge (built to last for 40 years) blown up and rebuilt. This generates jobs for construction industry including contractors for different aspects of the bridge. This likens to Keynesian policy where J.M.Keynes said that you should dig holes and fill them in to keep people employed. The Soviet Union found that central planning is good at mobilising resources, but is not good at sustaining innovation, or incentives that promote long-term growth. What China needs is more domestic consumption and move away from a reliance on government investment projects and export revenue. As ever Paul Solman explains things well.

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  1. Simon
    January 26, 2013 at 7:37 pm

    I agree with the young professor. Underlining one of the problems of central planning helps his analysis. It’s worth noting that the West has kind of jumped on the central planning band wagon through the central banks manipulation of interest rates and liquidity.

    That we live in very interesting times is really without doubt. Michael Pettis over at China Financial Markets is several decades ahead of the young professor in this analysis and would likely whole heartedly agree with him except the part about the very hard landing. A significant slowdown yes but maybe not a terribly hard landing. That is unless they fail to make significant adjustments in the next few years. The current administration seems to be pretty clued up on where their economy sits at present. So the understanding is there but the difficulties may well lie, according to Michael Pettis, in overcoming resistance from powerful vested interests for whom the adjustment to a more consumption led economy with less wealth disparity may not be terribly attractive.

    Certainly the market for hard commodities is likely to be seriously hurt but a drop in the cost of raw materials will support new and innovative manufacturing and we seem to be on the cusp of a revolution in new materials and processes that may open up the way for many wonderful new products. So China catching a cold may not give the rest of the world the flue. Australia and parts of south America perhaps but not the whole world. Anyway it would be hard for things to be much worse than they already are in Europe.

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