The dashing of youthful expectations of open-ended wealth and security for everyone with a college degree is highly combustible when combined with a popping real estate bubble and systemic corruption.
Those enamored of China’s ability to build empty apartments, empty malls and empty train stations are missing the big story, which is China’s boom is unraveling one person and one trade at a time. While the production of new subway systems and empty cities is definitely impressive, those focusing on capital projects are missing the erosion of faith in the China Boom story and the erosion of the foundations of the Boom Story: foreign direct investment, shadow banking, the real estate bubble and a central planning-dominated economy.
Central planning, booms and bubbles unravel in the same way: one person and one transaction at a time. The China Boom Story is falling apart not as a result of large-scale geopolitical crises but from the decisions of individuals.
Every wealthy Chinese who secures a non-Chinese passport and smuggles his/her wealth out of China is weakening the Boom, removing capital and perhaps even expertise and entrepreneurism.
Every individual who buys manufacturing equipment from Alibaba and ships the equipment out of China to a factory elsewhere weakens the workshop of the world story.
Every executive who decides not to invest capital in China, choosing to invest it elsewhere, weakens a critical pillar of the Boom.
Every Chinese household that decides not to gamble the family’s entire savings on an overpriced flat is deflating the real estate bubble.
Every young college graduate who can’t find a secure white-collar job and thus joins the millions of underemployed “ant people” living on the margins of the glitzy mall/Maseratis facade is living evidence that the Boom can’t deliver what was implicitly promised by the Central Planners.
China’s Ant People (1 hour video, BBC Four)
The conventional Western observer’s enthusiasm for China’s glitzy facade is matched by his abysmal ignorance of China and on-the-ground realities. East-Asian culture is centered around face, i.e. appearances and how they reflect, positively or negatively, on public image. Maintaining and burnishing appearances is more important than the substance, especially if the reality is negative.
This obsession with appearance/show is reflected in the glitzy exteriors of buildings, the jet-black-dyed hair of the ageing leadership, the ginned-up official statistics of perpetual growth, and perhaps most visibly in the typical product assembled in the workshop of the world: it looks great but falls apart long before its time due to low quality of key components. Only one component needs to fail to render the item useless junk that is hauled to the garbage dump.
This is the story few tell because it’s not positive and actually requires long experience in China. A culture obsessed with first appearances simply doesn’t provide much of a foundation for a long-term commitment to maintenance and built-in quality, the two essential parts of longevity and long-term efficiency.
The headline story is China’s amazing rush into building X,Y,Z: today high-speed rail, tomorrow, thousands of wind turbines. What few care to examine is the maintenance requirements of every one of those thousands of wind turbines. Without obsessive attention to the quality of each component and regular maintenance of each turbine, those initially impressive thousands will dwindle to hundreds and then dozens of operable turbines as the years grind away at inferior components and a lack of maintenance takes its toll.
Those seeking a more productive knowledge of China might start with Evan Osnos’ latest book, Age of Ambition: Chasing Fortune, Truth, and Faith in the New China. Here are excerpts from an insightful review of the book: Can’t Buy Me Love: China’s New Rich and Its Crisis of Values:
A growing segment of Chinese society now not only yearns to be well clothed and well fed but also feels a keen desire for truth, meaning, and spiritual fulfillment.Although Osnos does not explore it in depth, his book also suggests a link between many Chinese citizens’ quest for meaning and a set of gnawing worries churning beneath the frothy good times. The search for dignity is no mere embrace of New Age positivity.
It also reflects the fears and frustrations of a society laden with systemic risks: environmental devastation, bursting economic bubbles, the collapse of institutions hollowed out by corruption. Each of those threats has the potential to dramatically alter China’s course in unpredictable ways. The growing awareness among Chinese citizens of their society’s fragility has yet to translate into an overt political sentiment. But if and when that happens, it will come as a rude, and potentially earthshaking, shock to the ruling regime.
Yet for several years in a row now, the average starting salary of a college graduate in China has been less than that of an entry-level factory worker. Of course, after their families have sacrificed and poured their meager resources into the pursuit of an education, most college students find the thought of settling for blue-collar work after graduation inconceivable. In their desperate search for office jobs, graduates from rural towns and small cities congregate in cramped apartments and boarding houses in China’s wealthy coastal cities: “the ant tribe,” the Chinese call them.
Perhaps even more frustrating to China’s young and ambitious is a sense that the golden years of opportunity have already passed them by — the impression that, in Osnos’ words, China’s boom was “a train with a limited number of seats.”
Increasingly, a young person’s success depends on his or her parents’ connections, and one can find considerable vitriol directed against the so-called second-generation rich (fuerdai) when stories of them crashing Ferraris and enjoying $12,000 dinners circulate online.
The dashing of youthful expectations of open-ended wealth and security for everyone with a college degree is highly combustible when combined with a popping real estate bubble, systemic corruption, the implosion of a shadow banking credit bubble and the impending global recession.
Yes, China’s trade deficit with the U.S. just notched a record, but this is more likely to be a high-water mark rather than just another extreme on a trend that will march on unchanged for years or decades to come.