The Magazine

A Model to Avoid

The dark side of Chinese state capitalism.

Oct 24, 2011, Vol. 17, No. 06 • By YING MA
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Big-government types in the United States are simultaneously seduced by the sizzle of China’s economic growth and envious of the rapid completion of its large-scale, state-planned projects. Speechless before China’s meteoric global rise and frustrated with America’s economic woes, Beijing’s admirers in America have concluded the solution is to copy China. Not surprisingly, they know little about the jarring cost exacted by China’s government-centric approach.

Photo of a crashed train car

Errant bullet train kills 40: the down-side of high-speed rail.

Newscom

President Barack Obama represents all the misguided assumptions of this trend, which calls for fawning all over and freaking out about China at the same time. As a candidate in the 2008 presidential election, he bemoaned the crumbling infrastructure of the United States and noted that China’s state-directed infrastructure spending had produced ports, trains, and airports that were “vastly superior” to ours. As president, he has repeatedly invoked the Chinese example to call for massive infrastructure spending. In his jobs speech before a joint session of Congress on September 8, he asked, “And now we’re going to sit back and watch China build newer airports and faster railroads? At a time when millions of unemployed construction workers could build them right here in America?”

Given the adulation from abroad, China’s rulers have not hesitated to tout the superiority of their unique political-economic system. After all, authoritarian China has vaulted past Japan as the second-largest economy in the world and is expected by the International Monetary Fund to overtake the U.S. economy as the world’s largest in 2016. Chinese premier Wen Jiabao has spoken glowingly of the Chinese system’s general “advantages,” which he claims give China the ability “to make decisions efficiently, organize effectively, and concentrate resources to accomplish large undertakings.” 

Zhao Qizheng, who chairs the Foreign Affairs Committee of the Chinese People’s Political Consul-tative Conference of the Chinese Communist party, is even more explicit. In a book entitled The China Model, he explained, “In comparison with the West, we do not waste much manpower, time, material, or financial resources of taxpayers for [elections]. .  .  . You can go forward: You don’t need to quarrel and you don’t need to lose time.”

Not quarreling and not losing time, however, has resulted in numerous large undertakings—from infrastructure to economic stimulus to environmental cleanup—that create enormous inefficiencies, impose drastic human costs, and fail to bring sustainable benefits. 

Most glaring are the problems in the area of infrastructure, which captivates President Obama. In October 2010, with U.S. unemployment hovering near 10 percent, Obama glumly admitted, “There’s no such thing as shovel-ready projects.” China, on the other hand, was shoveling at breakneck speed.

To battle the global financial crisis that began in 2008, Beijing pushed out a $586 billion stimulus package and allocated 45 percent of the funds for infrastructure. Simultaneously, Beijing unleashed a torrent of lending by its state banks. In 2009 and 2010, the banks issued $2.7 trillion in new loans. 

Much of the state lending went to local governments eager to pursue grand dreams. Unfortunately, a great deal of what they built already appears downright useless. As the Washington Post reported, China’s stimulus spending produced “an astonishing frenzy of building—highways, subways, airports, bridges, high-speed rail lines, and even new cities constructed, literally, in the middle of nowhere.” Chinese citizens are staring at new airports in small counties to which few passengers will fly, new subway lines in small cities that may not have needed them, and high-speed trains with ticket prices many cannot afford.

The local governments, meanwhile, are sitting on large piles of debt they cannot afford. According to Victor Shih of Northwestern University, official estimates of total local governmental debt in China range between $2.4 trillion and $3.1 trillion, with the latter more than 50 percent of China’s 2010 GDP. Much of the debt consists of bad loans for which the central government will likely ultimately be responsible. Beijing, sitting on more than $3 trillion in foreign currency reserves, can certainly afford the bill, but its infrastructure binge and the subsequent hangover hardly provide a good model for America to copy.

Worse yet, high-speed rail, the crown jewel of China’s infrastructure prowess, has thus far delivered more human tragedy than authoritarian effectiveness. 

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