Cross-posted from Investing in Chinese Stocks.
Below is an op-ed by Gu Jun, a professor of sociology at Shanghai University, talking about the empty residential buildings all over the Chinese coast as a metaphor for the failure of central planning. He closes by tying it to Premier Li Keqiang’s reform efforts. This op-ed was the top headline in the real estate section of iFeng’s website on Sunday.
The title can roughly be translated as “this bubble is on the even of destruction.” Here’s is my incomplete summary (not a direct translation):
This bubble is not in Wenzhou, Ordos or Yulin, but on the shore. It is in Dalian , Yingkou, Qinhuangdao, Yantai, Weihai, Qingdao on the Shandong Peninsula, in Huizhou, Sanya and Beihai in the south, where the “ocean view apartment” is on the eve of destruction. Many rushed in to buy homes, but when night falls there are dark, empty buildings. In 2008, in Weihai, Shandong, homes were bought for more than ￥500,000; today they sell for ￥200,000, but there is little interest. There is a price, but no market.
When insiders describe the chaotic development of the coastline, they give three reasons. The first is that the timing wasn’t right, and they “over drafted” the coastline’s resources. The second is a lack of good planning; the developers moved as a herd and destructive development followed. Third, there was no core industry support, without a healthy ecosystem it could not continue growing. Valuable coastal ecosystems were destroyed, plans for scenic development fell through, now there is only a concrete and rebar forest, in the still of the night there are only a few lonely lights for comfort in this sad and lonely place.
This so called “coordinated” development, where government makes the decisions instead of independent actors, has turned into uncoordinated confusion. The BATs fly overseas (Baidu, Alibaba and Tencent), there is fake packaging scandals and shoreline destruction. Yet people still believe the government can implement the highest reason, they have a superstitious belief in planning, that government will somehow deliver long-term planning for the good of all society. Government is just another interest group though, and in the race to get promoted, officials pushed development to get ahead.
From the official’s standpoint, coastal ecology has nothing to do with me; fishermen, farmers and city residents need for a supply chain has nothing to do with me; scenic development needs what type of development and continuous promotion, has nothing to do with me; if the home buyers can even see the ocean, has nothing to do with me. It is the same with the losses in high speed rail, the world’s fastest M2 growth, and the investigation of the “tigers” and “houseflies.”
With this background, go back and understand Li Keqiang’s statement, “Whatever the market or society can do, will be left to the market or society” and the State Council’s powerful push to eliminate administrative approval, it is not hard to understand the meaning. Government and planning are the same as human reason, they are imperfect and flawed, waiting for the spontaneous action of countless individuals to correct.