Leafing through another exceptional issue of Monocle magazine – the May 2012 issue of the self-styled briefing on global affairs, business, culture and design – we were struck by a small item in the Asia section on the little-known-but-soon-to-be-huge Daxing Airport near Beijing. Slated for opening in 2015, this nine runway behemoth with a proposed area of 54 square kilometers will be the world’s largest, a bona fide air transportation showpiece. This did not come as any great surprise to us: as we noted in our blog post of 10th November 2011 entitled China Poised for Takeoff?, the PRC is slated to spend over US$237bn during the period 2011-2015 on the construction and relocation of airports.
Yet just at precisely the time when many in the economically moribund regions of Western Europe and the United States are anxiously looking to China both as a future source of prosperity and as a ‘saviour’ that will hand out vast volumes of cheap credit in exchange for cold, hard infrastructure, we at Mediolana are concerned that the PRC might be facing some economic adjustments of its own, and not merely in the form of a Chinese recession, an exotic possibility that is beginning to seep into the equations being worked out on the pages of the Wall Street Journal and London’s increasingly magnificent Financial Times.
As we see it, the basic problem is that the grand bargain struck between the Communist Party of China and the citizenry of the PRC at large – 10% economic growth per year in exchange for compliance in the face of executive authority – is in danger of producing pronounced structural irrationalities in the Chinese economy which at some point are going to have to be resolved. This is partly down to the bizarre manner in which GDP is calculated regardless of where one is in the world – as has been pointed out exhaustively in some of the saner publications to populate our newsstands, every hospital admission for cancer produces an uptick in the national income statistics – which has resulted in the fetishisation of figures at the expense of prosperity or even good economic logic.
For a number of years now, strange phenomena such as ghost shopping malls, brand-new cities with no residents and surreal infrastructural duplication have been abundantly evident in the PRC. However, these are not rare quirks which can be put down solely to administrative corruption – an endemic problem of which the Communist Party of China is now all too aware – but expensive, far-reaching projects which were often financed by massive amounts of debt. The Chinese University of Hong Kong Professor Larry Lang has estimated that local government debt in China lies at between US$2.5trn and US$3trn, with the nation’s banks – under strict orders to make cheap money available to underwrite this malinvestment bubble – now confronted with stacks of non-performing and under-performing loans as the true value of the zombified urban fabric becomes starkly apparent.
If all of this – the privileging of political dreams over economic realities, the shunning of market signals and a once-flush banking sector with red ink spilling across its balance sheets – sounds familiar, then to adduce the legendary financial analyst Alessio Rastani, it may well pay to Get Prepared: any Chinese imitation of the West’s fiscal crisis may have consequences that are genuine enough, and no number of new runways will be able to forestall them.
