Monday, September 10, 2012

The Economic Mess in China Continues to Develop (It's Austrian Business Cycle Theory in Real Time!)

Joe Nelson emails:

The mess in China is continuing to unravel, as I know you're well aware. I was scanning some news stories this evening when I came across this bit from the NY Times on the downturn in construction spending and fixed asset investment in China (emphasis mine):

CHENGDU, China — With more than 100 tall cranes on the skyline, this metropolis in western China looks vibrant at first glance despite the country’s sharp economic slowdown.

But only a few cranes — those building national government projects like a high-speed rail line — are floodlit and busy far into the night. The more numerous cranes looming above the skeletons of future high-rises move much less often, even by day, and are dark and deserted by night.
The pattern among Chengdu’s construction cranes is evident across the country. As summer fades into autumn, Beijing is stepping up investment in a bid to rescue the economy, but consumers, businesses and debt-burdened local governments in China are showing little interest in spending money again.
Economic data released on Sunday by the National Bureau of Statistics showed the extent of the problems. Investment in new buildings and other fixed assets is in the doldrums. Manufacturers are retreating from ambitious production goals as they struggle with bloated inventories of unsold goods. Even the service sector, still underdeveloped and widely seen by economists as full of potential, is showing signs of distress.

That last paragraph is what really caught my eye. I don't know if Keith Bradsher, the reporter from the NY Times, is familiar with ABCT, but doesn't that second to last sentence almost sound like it was pulled straight out of Human Action? It's ABCT in real time! Unfortunately, this likely means there's some serious pain ahead for the Chinese economy and most likely, it'll be your average Chinese guy or gal who will be hit the hardest. Those who brought about the mess through central bank inflation or political corruption will likely get away unscathed, their money long ago sent to places like Hong Kong, Singapore, NYC, or Vancouver.


  1. I've been discussing the China Bubble with a friend and money manager who was railing against the "China haters" and was trying to make the point that Chinese central planning is somehow more effective than US central planning because "they get buildings whereas we get war and bombs" and also because "they have a strong work ethic, no social safety net and people really believe in the role of the State there".

    I really didn't know what to make of his comments, especially because he is a fan of Bastiat and, I thought, familiar with Austrian Business Cycle Theory.

    I still don't, but stuff like this seems to me to show that, whether he is right or wrong about China's central planning being more efficacious than most, all is not well in the state of Denmark (to paraphrase Shakespeare in a poor fashion).

    But what do I know. This is why I don't try to centrally plan anyone's economy.

  2. Calculational Chaos. Looks like they're going to have to pay people to live in those buildings.