China’s empty buildings, unused airports, and barren highways are what central planning looks like in practice.
China’s empty buildings, unused airports, and barren highways are what central planning looks like in practice.
One of the key problems with central planning is that government planners don’t know how much to produce. In the absence of price signals that communicate the need for goods and services, they just have to guess. The guesses aren’t guided purely by practical analysis, of course. Political considerations often play a large role, as do the desire to “uplift” less developed areas.
China’s province of Guizhou is one of its poorest. The government sought to spur development there and commissioned massive construction projects. Bloomberg reports some staggering facts of the government’s overbuilding.
Near the city of Zunyi, one of Guizhou’s largest, the government built three airports. The one furthest from the city only has four flights per week. Guizhou’s mountainous terrain has provided a playground for Chinese civil engineers, and the province is home to nearly half of the world’s 100 tallest bridges. It’s “questionable whether it was entirely necessary,” Bloomberg puts it mildly.
There’s a massive urban expressway project with no cars on it in Zunyi. Apartment buildings still have cranes above them, but they haven’t been operating, and the projects appear stuck in time.
“That kind of construction is expensive, and in an impoverished place like Guizhou it’s hard to make enough money from these roads, trains and airports to pay for the cost of cement, steel, cranes and workers, let alone be able to repay bond holders and banks,” the piece says.
In a world with zero interest rates, it was easier to get away with this kind of borrowing. As central banks around the world have raised interest rates over the past two years, it no longer is.
These inevitable consequences of central planning are only one of China’s many economic problems. The Bloomberg piece goes on to say:
Exports tumbled for a second straight month in June, imports weakened and producer prices slid further. Consumer inflation flatlined, fueling concern about deflation. Despite a jump in loan growth after the central bank cut interest rates last month, positive data has been the exception rather than the rule.
The People’s Bank of China is one of the only major central banks in the world cutting interest rates right now. That’s not a sign of confidence in the Chinese economy, whose growth is slowing even according to government data that is likely inflated.
Though China has made some moves to reduce its persecution of businesses, it is also shooting the messenger. After Goldman Sachs released a report critical of China’s economy, the government responded by criticizing Goldman Sachs in state media, Bloomberg says.
To the extent that China benefited from foreign investors’ positive views of its economy, it will also be harmed by their eroding confidence. While controlling the flow of information and using state media to suppress political opposition might work to maintain the CCP’s grip on political power in China, it will not work to fool international financial markets. And the visual evidence of empty buildings and unused infrastructure, built by government command with borrowed money, is too obvious to deny.