China’s Infrastructure Development Has Changed to Owning Cars and Residential Speculation
Op-Ed Commentary: Chris Devonshire-Ellis
Sept. 16 – Traveling extensively as I do, I often have the privilege of being able to ask people from around China and in other countries what they think of the real growth rate in the country. Although the China miracle seems assured, on far too many occasions for comfort do I see empty housing, a massive supply of cars and an increasing sense of economic stagnation. Yes, China has been booming, but is it really doing so now?
Just in the past two months I have visited several second-tier cities in China, and a feeling of unease begins to develop. From Chongqing to Dalian, from Changchun to Xiamen, the story appears the same. An oversupply of vehicles now clogs the busy streets, even second tier rush hours are now becoming a big hassle, and everywhere I see massive residential developments that have been completed with all the lights switched off. While over the past 20 years China has engaged in a massive and sensible rush to develop its infrastructure, it seems that is now dwindling away, that the impetus to change and forge a new, dynamic nation is being replaced with short term commodities and speculation.
That China’s auto industry has overtaken that of the United States is well known. Yet what does that really mean for the country? China is still a net importer of oil and now needs even more. There is no lasting residual value in a used car, and while the industry for China is important as it employs millions, the famed China infrastructure is falling short of a relatively simple thing such as keeping pace with the volume of traffic. Just two weeks ago it saw the world’s longest traffic jam in Beijing. China’s infrastructure is starting to creak under the strain and they have taken their eye off the ball.
It’s a sobering thought, but it is now quicker for me to drive across the city of Mumbai from Bandra to Worli across the Sealink than it is for me to get from downtown Dalian to the city Hi Tech Zone – both a distance of about 25 kilometers. As China’s cities get clogged with traffic, the roads are proving unable to cope. China’s own infrastructure faced with the onslaught of vehicles is starting to slip behind that of modern India. While I have no doubt that Mumbai will also experience a surge in automobiles, the fact is demonstrative that China’s own infrastructure planning has shown short comings, and that the money is no longer being put into highway development.
The ominous and massively repeated acres upon acres of residential real estate I encounter in every Chinese city are a case in point. Luxury developments, all empty. Monolithic, 20-30 story buildings, all unlit during the evenings. No one is living in them. Why? They’ve been purchased by speculators, all hoping for a rise in value. It’s an understandable phenomenon. Deprived over the generations of self ownership under communism, people want to secure its future by property acquisition. That’s usually a sound long term bet in a market economy, but China’s real estate is far from that. Property price rises are paper increases, and who wants to move into a residential estate with three hundred empty flats and no open shopping facilities?
In comparison, if that happened in India there would be an outcry. There are far too many without and the democratic and media outrage at such waste would be more than any developer or government official would wish to risk. Instead, I get an uneasy feeling that China is moving towards a wasted opportunity, newly wealthy, yet squandering its previous can do attitude on a series of overblown, overhyped and unnecessary projects that are potentially threatening to disrupt the economy. I’m not the only observer of this situation. “We thought Dalian would have grown more by now” says one expatriate restaurateur, “it seemed seven years ago as if it would take off and start to attract more investment. Instead it appears to have stood still.”
When looking at the Dalian rush hour, or trying to get from the airport to downtown, I would partially agree. While the traffic has massively increased, the actual city infrastructural development appears much the same as before. It hasn’t kept pace with the traffic. There are other side effects. Dalian’s coastal weather has always been the provision of blue skies and clear air. Nowadays though, the air is muggy, filled with haze. It bodes ill. As a Japanese client from Toyama remarked to me in the city this week, “The Chinese may have made a lot of money, but now they are wasting it.”
The worrying aspect is that as a casual comment, it rings rather true. In the meantime, Indians are rebuilding their national and city infrastructure. It’s their economy that I see as more robust in the next decade unless China starts to seriously rethink what is happening in their own country, and reapply the nation to a new sense of the discipline and focus that got them this far. If not, the Chinese economy will begin to slide backwards under the weight of unproductive developments, wasted opportunities, and a lack of reinvestment, all dressed up for the media as “Chinese consumerism.” The warning signs are already apparent.
Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates, establishing the firm’s China practice in 1992. The firm now has 10 offices in China. For advice over China strategy, trade, investment, legal and tax matters please contact the firm at firstname.lastname@example.org. The firm’s brochure may be downloaded here. Chris also contributes to India Briefing , Vietnam Briefing , Asia Briefing and 2point6billion
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