While economists began the year feeling bearish about China’s slowing growth, they have perked up about the nation’s prospects since the government confirmed it would continue with stimulus policies it began in 2008. There has been no major announcement of a multi-trilllion dollar stimulus package this year, but all the signs are that Beijing is pressing its foot down hard on the pedal to kickstart job creation and boost GDP growth. Here is one rundown of this year’s ongoing road, rail and subway projects.
The problem with construction for its own sake is that it can create waste, as well as very high debt and possibly the next global credit crisis. China has been building ghost towns for years, and journalists have already written a lot on well-established empty cities such as Ordos in Inner Mongolia and Chenggong, in the southwestern province of Kunming.
But like a neverending vaudeville show, the bizarre hilarity of Chinese overbuilding never stops. City governments have GDP targets to hit and social projects to pay for. So they sell land to property developers to build skyscrapers, and the construction keeps citizens employed. Lots of cities believe they too can be the next Shanghai. And the easiest way to upset a planning official is to suggest that if every province in China has a new financial centre, there may not be enough investment banks and law firms to fill all the space.
Beyond real estate, China is stimulating its economy by stockpiling commodities and announced plans in July to spend $70 billion on new railways by the end of this year. The country is not necessarily hurtling to disaster. One columnist argues its ghost towns will eventually be filled as China’s economy keeps growing.
Nonetheless, here are 2012′s most eyebrow-raising developments.
1. The $4.8 billion propaganda theme park in Tibet. The land of the Dalai Lama probably has enough going for it to attract tourism. The so-called “rooftop of the world” has captivated spiritual seekers and adventurers for hundreds of years. Not only does it have some of the world’s oldest and most-venerated monasteries, it also boasts Mount Everest.
But the Chinese officials who run Lhasa plan to pour $4.8 billion into a theme park that will be heavily based on the legend of Princess Wencheng, the niece of a seventh century Tang-dynasty emperor who married a king from Tibet’s Yarlung dynasty. Her tale has been embraced by Chinese authorities as a parable of ethnic harmony between Han Chinese and Tibetans. Officials have said the park will “reduce pressure” on Lhasa’s established tourist destinations, such as the 1300 year old Jokhang Temple, the heart of spiritual Tibet. And despite Tibets’s own extreme natural beauty, Chinese developers are also planning to construct of set of theme villages in Tibet’s southeast that look like Switzerland.
Theme parks in China are at the excessive end of the debt-fuelled stimulus. Local governments have accumulated a huge amount of debt through infrastructure projects. Last year, the Beijing government briefly suspended theme park construction in an attempt to rein in unnecessary real estate development.
2. “Manhattan” in Tianjin. This project first hit the headlines last year, but is still under construction. Tianjin, a deeply indebted city 100 miles southeast of Beijing that has relied heavily on land sales to developers to shore up GDP, is building 47 new skyscrapers to create a massive new financial district that is nicknamed “China’s Manhattan.” Early reports said it was set to be a facsimile of New York, with a Rockefeller Center and even some Twin Towers. Unlike the real Manhattan, however, Tianjin is not a natural home for investment banks and law firms and is unlikely to become one. The first dozen skyscrapers built will flood Tianjin with new office space equal to the size of four Empire State Buildings. And as the new district is being built on salt flats, it may be vulnerable to typhoon damage or increases in sea level. Tianjin is offering private equity firms tax breaks to lease office space in the city, which has shown some success. But private equity firms do not tend to employ armies of staff. Chinese cities commonly build financial districts to create jobs and earn money from land sales. Zhengzhou in Henan, an inland province best known for exporting migrant workers to China’s wealthier southeast, has a new financial district that is larger than Vatican City (paywall).
3. All the new aluminum smelters. Even though China’s economy is slowing, the government is stockpiling aluminum produced by domestic smelters. It is possible Beijing has advance knowledge that the global supply glut of the bendy metal (partly caused by Chinese overproduction) is set to reverse. But it is more likely that the vast number of aluminum smelters China already has are finding it difficult to locate customers. Building aluminum production plants is a time-honored method Chinese local governments use to keep people employed and hit their GDP growth targets. China accounted for 119 of the 133 aluminum smelters built globally between 1985 and 2005, according to the London Metal Exchange. But it is building more, with projects worth billions of dollars ongoing in poorer, western regions.
4. The $250,000, Chinese-built, empty apartments in Angola. Ghost towns are now the latest Chinese export. Funding China’s long march into Africa is the sort of project that wins China’s state-owned conglomerates political brownie points. So Citic, one of the nation’s oldest state-owned enterprises, has built a $3.5 billion new housing development in Angola. Construction provided jobs for Chinese workers and construction firms, easing pressure on governments in poorer provinces back home to find jobs for their people and giving Chinese real estate developers something to do. The problem is the town is empty. The apartments range in price from $120,000 to $250,000. GDP per capita in Angola is $5,148 per year, according to the World Bank. It is uncertain what benefits Angola will derive from this project. For Citic’s efforts, China is getting paid back in Angolan oil.