Modern China's Original Sin
Tiananmen Square's Legacy of Repression
The Tiananmen Papers
China: Erratic State, Frustrated Society
Long Time Coming
The Prospects for Democracy in China
The Life of the Party
The Post-Democratic Future Begins in China
Democratize or Die
Why China's Communists Face Reform or Revolution
How China Is Ruled
Why It's Getting Harder for Beijing to Govern
Chinese Dissidence From Tiananmen to Today
How the People's Grievances Have Grown
The Geography of Chinese Power
How Far Can Beijing Reach on Land and at Sea?
The Game Changer
Coping With China's Foreign Policy Revolution
How China Sees America
The Sum of Beijing’s Fears
Beijing's Brand Ambassador
A Conversation With Cui Tiankai
The Inevitable Superpower
Why China’s Dominance Is a Sure Thing
The Middling Kingdom
The Hype and the Reality of China’s Rise
The Risky Strategy Behind China's Construction Economy
Austerity with Chinese Characteristics
Why China's Belt-Tightening Has More To Do With Confucius Than Keynes
Where Have All the Workers Gone?
China's Labor Shortage and the End of the Panda Boom
After the Plenum
Why China Must Reshape the State
The Great Leap Backward?
Construction workers install scaffolding on the top of a building in Shanghai. (Aly Song / Courtesy Reuters)
For four decades, the Chinese economy has grown by between seven and ten percent each year. It is the envy of the world, despite its relatively sluggish recent performance. Visitors to Beijing, Shanghai, and other major Chinese cities are quickly awed by impressive skyscrapers, glittering shopping malls, new highways, and high-speed rail lines, all of which leave the impression that China is a developed economy -- or at least well on its way to becoming one. Even in some smaller cities in inland provinces, government buildings make those in Washington and Brussels appear meager. In an area of Anhui Province that is officially designated an "impoverished county," the government office block looks exactly like the White House, only newer and whiter.
Underwriting the impressive facade, however, is an incredibly risky strategy. Governments borrow money using land as collateral and repay the interest on their loans using funds they earn from selling or leasing the same land. All this means that the Chinese economy depends on a buoyant real estate market to keep grinding. If housing and land prices fall dramatically, a fiscal or banking crisis would likely soon follow. Meanwhile, local officials' hunger for land has displaced millions of farmers, leading to 120,000 land-related protests each year.
The recklessness can be traced to two things: First, local Chinese officials are evaluated for promotions and other rewards based on how well the economy they manage performs. Construction and real estate activities are among the most straightforward ways to stimulate growth. White-elephant construction projects thus offer eager officials a perfect opportunity to impress their political superiors, even if massive developments do not necessarily make any economic sense. Take, for example, the city of Ordos in Inner Mongolia: Its elaborate urban infrastructure and its sea of new flats and office blocks are nearly all unoccupied, making it China's largest ghost city.
Another factor was China's fiscal recentralization
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