A video that illustrates the problem I've been concerned about in China:


So they built an entire city, with houses, infrastructure and everything where nobody lives. The construction of such a city contributes to GDP growth in the short term, but this is just pointless spending if nobody lives there. So either they'll have to somehow convince people to live there through some kind of subsidies or some such, or the place will just slowly fall apart.

This gets back to my beef with how the press have generally treated China's economic story. They've heralded the way the Chinese government has been pushing the country forward, but they ignore what the ultimate costs are of that progress. They ignore the corruption and the inefficiency of the Chinese system. They ignore billions spent on worthless infrastructure. These all give the impression of strong economic growth, but they are really evidence of waste.

Remember back when we were talking about the initial stimulus bill in the US about "shovel ready" projects. That was about finding projects that need money right now to develop useful infrastructure. The benefit in such projects is you spend the money in the short run on projects that address actual needs. So this has a the initial positive stimulus effect, but added long term benefit from the use of the improved infrastructure.

In China, they are basically just dumping money out the door on anything. They don't have all of these elaborate rules about environmental impact studies, and cost benefit analysis. Instead, they are building whole cities from the ground up just to spend the money. It's taking the real estate bubble that we had in the US and pumping it up with government spending. Does that seem like a recipe for disaster to anybody else?

The problem is that China has become so desperately dependent on this unsustainable growth that they'll be compelled to keep doubling down on what's an already failing policy. Build yet more empty buildings with yet more empty roads going to them. Push out more subsidies to consumers to get them to buy more TV's, etc. But eventually, they'll blow through their vast reserves and find themselves at the limit of what they can possibly do.

From a blog post by Robert Reich:

Check this out:
The effect of this will be to force most manufacturing that's dependent on those raw materials to be located in China.  Of course we can't really complain all that much because we owe them scads of money.  Not that our corporate owned legislators really give a damn anyhow, but if they did, I doubt they'd say much.

Check this out:


So what's happening is that with China seeing a huge drop in demand for their goods is trying to keep the economy going by pumping tons of cash into the system.  The money is ending up doing what it did here, getting dumped into the real estate market.  This will, of course lead to what we saw here, a speculative bubble followed by tons of bad debt and a general economic melt down. 

Of course the whole thing is made much much worse by the corruption and total lack of transparency of the Chinese government.  I mean, think about what you just read.  A city decides to relocate itself, building all new buildings in a haphazard uncoordinated manner.  In the process it displaces people who lived where they are now building and they build places for those people to live.  How is that possibly sustainable?  It isn't.

It's like the US bubble economy in a fun house mirror...

I'm sitting here watching CNN awaiting the verdict from Iowa and they mention an upcoming story on "Communist China".  I'm immediate suspect of anybody who refers to China as "Communist China".  We don't refer to Capitalist England do we?  The only reason to mention that it's "communist" is to immediately cast it in the light of being a scary enemy.  Granted, this was Lou Dobbs so what do you expect?

The reality is that China's not really "communist".  It's not a liberal Jeffersonian Democracy, don't get me wrong.  It's definitely an authoritarian state, but what is going on in China today can hardly be described as communism.  To make a point of calling it that just screams of cold war xenophobic paranoia.

Quoting from a CNN interview by Wolf Blizter to be aired shortly:

Q The criticism is that you took your eye off the ball by going into Iraq and, in effect, reducing the focus of attention on al Qaeda and bin Laden.

THE VICE PRESIDENT: It's just not true. I've heard that charge; it's simply not true, Wolf. The fact of the matter is we can do more than one thing at a time, and we have. And we've been very successful with going after al Qaeda. They're still out there, they're still a formidable force, but they're not nearly as formidable as they once were in terms of numbers and so forth. We have successfully defended the country for over five years against any further attacks.

So we can do two things at once, huh?  So explain to me why:

1. We has to redirect funds from Afghanistan to begin the planning for the Iraq war
2. We are withdrawing forces from Afghanistan at a time when the Taliban is resurgent to increase our presence in Iraq

Seems to me that we're spreading our attention, and our resources, awfully thin.  Furthermore, as I read in a Stratfor article yesterday, one growing problem with our focus on Iraq is that we don't have our best minds considering future conflicts.  For example, China, who recently tested an anti-satellite missile successfully, may be setting the stage to contest US naval power around Asia.  The logic being that while they do not possess the kind of naval power we have, they can substantially reduce our effectiveness by crippling the satellites we use for intelligence gathering, communication, and navigation.  Not a threat today, but one to consider for say 5-10 years from now that isn't on the front burner because of Iraq.