Little by little the claim repeated by so many China bulls – that you can never spend too much on infrastructure – is being eroded. It is possible, it turns out, to waste a lot of money even on infrastructure, and if debt-fueled investment is being wasted in China, as I have been arguing for over half a decade, then without doubt debt must be rising at an unsustainable pace. _MPettis
Local governments nationwide have slashed infrastructure spending since last summer, and the urban rail business has slowed to a crawl after several years of rapid growth. Spending for subways was cut as central government economic planners put the brakes on rail projects and indirectly reduced local government spending power by maintaining real estate market controls designed to prevent housing price inflation. _Caixin
China's banks may be understating their exposure to runaway local borrowing that is raising fears of a government bailout, according to a Bloomberg analysis of debt disclosed by all 231 local-government financing companies that sold bonds, medium-term notes or commercial paper through Dec. 10 this year.For the last few years, Al Fin economists have predicted that China's massive buildup of ghost infrastructure would eventually run out of steam, against all the contrary sentiments coming from official statistics and China advocates both inside and outside of China. How could they be so confident?
...“You should be more worried than you think,” he said of Bloomberg’s findings. “Certainly more worried than the banks will tell you.
“You know how this story ends -- badly,” he said. _Bloomberg
In early 2009, the newly inaugurated US President Obama began laying out his policies more clearly, in conjunction with the then all-Democratic Congress. It was clear that Mr. Obama's policies were distinctly antagonistic to private sector growth, with a strong odour of energy starvationism attached. Combined with the banking and housing crises largely created and abetted by unwise government policies related to banking and house financing, it was apparent that the US economy could not recover in a healthy manner -- no matter how many $trillions Mr. Obama squandered on his political cronies and supporters.
Likewise in Europe, it was clear that a combined crisis of debt and demographic decline had been building over a long period of time, which combined with the international banking crisis and financial collapse would not allow Europe ot bounce back this time.
Since the bulk of China's income derived from its export markets, and since its two largest customers for exports were suffering extended economic problems of their own -- and of their own making -- China could not sustain its monster growth rates in any legitimate way, over the short term.
The ad hoc strategy of attempting to build and borrow its way into sustained high growth might have worked had China been able to liberalise its markets and society while tightening restrictions on economic activity by all local and central governments. In other words, China needed to institute constitutional restrictions on government action while loosening restrictions on private action. That would have taken time, and would have been strenuously resisted by entrenched political powers inside the country.
In a society as insular as the current Chinese society, the sense of threat from real and imagined entities both inside and outside one's borders tends to be overwhelming, in times of rapid change. It was clear the CCP would only liberalise gradually, if at all.
Therefore the over-building and over-borrowing gambit could have been seen as unsustainable from the beginning -- to anyone who properly anticipated the economic effects of US President Obama's policies on the world's largest economy.
The fact that so many US economists of the highest rank failed to anticipate the tragic reality of Mr. Obama's regime and its policies, is a sad testimony to modern economics whenever it is influenced by leftist political philosophy.