If you've been paying attention to the news recently you probably noticed that China is now officially the world's second largest economy, having recently passed Japan. There has been a steady drumbeat leading up to this as China surpassed Japan over the past few years on a number of scales, but beating it out in the GDP race is definitely the big one. Now commentators are moving on to the next logical question: when will China surpass the US to become the world's largest economy?When I look at China's economic rise and the speculation as to what its future place in the global economy will be I can't help but draw parallels with Japan's own rise more than 20 years ago. The rhetoric in the international media is certainly similar. Its become a cliche, but in the 1980s, based on years of high growth rates, commentators were likewise speculating that Japan would surpass the US to become the world's largest economy. A small industry devoted to studying and writing books in English about Japanese management, administrative and corporate governance techniques sprang up as American businesses began to wonder what their Japanese counterparts were doing right. This is an exaggerated image of how Japan was viewed back then, but at any rate these notions of Japan as number one were at least in circulation.
Then in 1990 the whole thing came crashing down like a house of cards. Twin bubbles in the real estate and stock markets burst, putting the brakes on Japan's economic growth and talk of it supplanting the US as the world's leading economic power. Two decades of stagnation interspersed with periods of modest rates of growth followed. Internationally the discussion about Japan turned from how other countries could emulate Japan to how Japan could emulate other countries. Again, this is an exaggerated picture of things, but the ideas floating around certainly did switch gears like that.
So one kind of wonders if China is destined to surpass the US or, like Japan, is there a growing bubble built into its economic growth that will prevent or postpone its overtaking of the US as the world's largest economy?
I'm neither a China expert nor an economist so I'm not poised to give a reliable prediction about these questions, but I'll give it a try anyway. Take what I say with a grain of salt. I say that China is going to hit that same wall which Japan did 20 years ago. I base this opinion on a theory I have developed from direct observation in Japan. It isn't scientifically based but nonetheless, I think it is worth putting out there.
I call this theory the "tasteless, stupid theme park/mega development theory". Basically this theory states that the production of tasteless, stupid theme parks and similar mega developments can be taken as an indicator that an economy is experiencing a bubble.
I should be careful to define my terms here. The term "tasteless" can obviously be very subjective and culturally defined, though I think there are certain types of development that can objectively be described as "tasteless". Here I refer to developments that deliberately abandon all traditional norms of taste in architecture (which will differ across societies), and deliberately seek to obliterate and dominate the surrounding scenery so as to call attention to themselves. This is the sort of thing I have in mind:
"OK people, we are going to make this thing tasteful and elegant" was clearly not an instruction given by the designer of the above edifice to his or her team when they set about drawing up plans for its construction.I use the word "stupid" here as a form of shorthand for the notion that these developments should also be based upon fundamentally unsound business plans that have little to no hope of succeeding.
So, why would the spread of tasteless, stupid mega developments be a sign of a bubble? Well first its useful to note what a bubble is. Bubbles occur when the price of assets get inflated beyond what their underlying value should be. Their causes and effects are widely debated, but they generally signal a problem in the financial system that leads people to improperly allocate financial resources.
So, my basic working "theory" is this. The easy access to credit and overvaluation of assets typical of bubbles will invariably lead a number of businesses or other decision makers with access to the purse strings (more often local and prefectural governments during Japan's bubble) to make the decision to invest in large theme parks and similar mega projects that they would not have if the economy had been behaving normally. The warped financing caused by the bubble will cause the decision makers to overestimate the potential profits and value of the project, and subsequently build something that in reality has no hope of success (the "stupid" side of the equation). Because these types of projects are often in businesses that deliberately use eye-catching and gaudy architecture to catch the eyes of potential customers a lot (though not all) will also be "tasteless".
I should emphasize that this theory doesn't suggest that such projects are the cause of bubbles, I'm just saying that they are a physical manifestation that might indicate the existence of a bubble. I should also emphasize that there are a lot of intricacies in the way these projects are financed and planned which this theory completely ignores (in Japan a lot of them are the result of ill-advised government backed schemes to prop up local economies back in the 1980s). Nonetheless its kind of an interesting way to look at the issue.
Now, one way to predict the future is of course to look to the past. One of the most prominent physical legacies left by Japan's bubble era is the slew of tasteless and/or stupid mega developments that litter the countryside. Exploring Japan can sometimes be a truly surreal experience as a result and a popular past-time among younger Japanese is to explore the "Haikyo" (abandoned structures) that are almost everywhere.
Kyushu is home to a couple such mega developments that I always like to talk about because of how ridiculous they are. In fairness they aren't really "tasteless" as per the above definition but they definitely are "stupid."
The first is the Sea Gaia Ocean Dome development in Miyazaki which I saw from a distance when we visited a couple weeks ago:
This is the largest indoor artificial beach in the world. It is 300 metres long, entirely contained within the dome and has a wave machine and every type of amenity you could imagine.It is, however, without a doubt one of the stupidest developments I have ever seen. If you have a look at my blog posts from my trip to Miyazaki you might notice the abundance of photos of beautiful beaches and coastline that I took. This stupid Ocean Dome is built right next to that exact same coastline and I could in fact see the bloody thing while I was swimming at the beach in Aoshima.
So, in other words, with an abundance of lovely, completely free beaches in a prefecture that has a mild climate year-round the people who came up with this concept actually had a conversation the gist of which was:
"I know, lets spend hundreds of millions of dollars building a massive, artificial version of something that people can get elsewhere for free. Then, lets locate it right next to the free one. And then lets charge people 2600 yen (about 25$ US) each to use it, so the average family of four will have to fork over 10,000 yen for a day there. And lets design it so that its maintenance and energy costs are so high that nobody will ever be able to operate it at a profit without charging ridiculously high admission fees. This'll be a goldmine, it absolutely cannot fail!"
I should note that this project was largely financed and planned by the Miyazaki Prefectural and city governments, which ultimately lost huge amounts of money when forced to sell this facility for a price so low it was more or less giving it away. Despite the low price it paid (14 million dollars) the operator which purchased it was unable to put it to profitable use and the whole dome now sits empty and unused, a monument to the gross wasting of financial, material and environmental resources that punctuated the bubble years.
Another one of the "stupid" bubble era projects that Japan is saddled with is Huis Ten Bosch, a theme park located in Nagasaki prefecture. The entire park is a recreation of a Dutch city:
This wasn't some cheapo undertaking, they imported massive (expensive) quantities of bricks and other building materials from Holland to build it. It certainly isn't "tasteless" but like Sea Gaia it definitely falls into the "stupid" category. As you can see from the above photo, it is an extremely large-scale project.One fun statistic that just makes me laugh out loud whenever I hear it is that when you factor in the cost of transport by Shinkansen and local train from Tokyo, the cost of admission to the park and a one-night stay in one of its hotels a person could actually buy a round trip ticket from Japan to the REAL Holland for less money than the cost of a weekend trip to Huis Ten Bosch.
The Park has been an absolute nightmare for local and regional governments (who likewise shoulder a lot of the blame for its construction in the first place) since the company that ran it unsurprisingly went bankrupt a few years ago with almost 2 billion dollars US in debt. There are basically two problems with it. The first is that the high operating costs of such a large theme park coupled with everything else its got going against it (poor location, competition from newer parks and the real Holland, etc) make it almost impossible to run at a profit and there has been an almost revolving door of corporate sponsors unsuccessfully trying to turn it around under court administration. Recently its business plan has involved focusing on attracting Korean rather than Japanese tourists, though the high yen has seriously hampered those efforts.
The other problem is that the park is one of those "too big to fail" things. The park's infrastructure (passenger rail and road links, electricity and water works, etc) is so interconnected with that of the surrounding town that shutting off the park would basically mean shutting off the town too. Plus the series of artificial canals and other features would create serious environmental and public health hazards if they weren't properly maintained. And of course the park is basically the only employer in town so shut it down and you've got a town that, even in the absence of the above problems, would become economically nonviable overnight. Under threat of all of this, the taxpayers of Sasebo City and Nagasaki prefecture have basically been forced to subsidize the companies that agreed to take over operation of the park a few months ago.
These two examples - Sea Gaia and Huis Ten Bosch - are by no means exceptional, though in scale they are larger than most. Japan is literally littered with the physical remnants of these type of stupid projects that made absolutely no sense. They represent a gross misuse of financial resources caused by decision making processes which led to completely irrational choices being made in terms of how businesses should invest their money.
Now when I look at China - and I should stress that I know very little about the country and have never been there - the anecdotal evidence strongly suggests that it is currently very busy in the process of building its own versions of Sea Gaia and Huis Ten Bosch. Exhibit A is the South China Mall, the world's largest mall built in Guanghzou and opened in 2005. It is about twice the size of the previous record holder (the Mall of America). A really interesting 13 minute film about it can be watched here. The size and scale of that mega project is truly amazing, in tastlessness and size it completely blows away anything even Las Vegas could offer.
The most interesting thing about the South China Mall though is that, after five years in business, the world's largest mall only has about 10 shops actually running. It is 99% empty. The above linked video just says it all, a massive cathedral of consumerism that is completely devoid of human activity. It actually makes Sea Gaia and Huis Ten Bosch look small in comparison.
China seems to have no shortage of such albatrosses going up. In the words of Bill Bonner, who also notes the parallels with Japan:
"Outside Beijing, the zombies are multiplying too. Whole cities are empty. And in the suburbs of Huairou, a mock alpine village…with a 200ft clock tower…rises improbably in the industrial suburbs. Called the “Spring Legend,” its publicists must be the same people who write fortune cookie forecasts: “The air is so fresh it penetrates your heart,” says the sales pitch. You would normally dismiss such descriptions as puffery. But in China’s industrial suburbs the air is often so acidic that it might penetrate the skull too."
China is a notoriously unreliable country for economists to study due to the lack of unreliable statistics - just about everything the government publishes is considered suspect. My theory of tasteless and stupid theme parks/ mega developments can get around this as these things can be observed first hand without any need for large scale statistical analysis. The anecdotal evidence certainly indicates that China, like Japan in the 1980s, is squandering huge amounts of its scarce resources on these types of things. Time will tell how long it will take for all this to catch up with the country and its finances.
No comments:
Post a Comment