The township of Huaxi in the Yangtze River Delta is a proud symbol of how Chinese communists embraced capitalism to lift 300 million people out of poverty during the past three decades.
Its leaders took a farm community with bamboo huts and ox carts in the 1970s and transformed it into an industrial and commercial powerhouse where today many of its 30,000 residents live in mansions and most have a car. Per capita income of 80,000 yuan (US$11,700) — almost four times the national average — allows Huaxi to claim it’s China’s richest village.
Huaxi is also emblematic of the country’s construction and real estate boom. Chinese Communist Party (CCP) officials there are building one of the world’s 30 tallest buildings, a 2.5 billion yuan, 328m tower. The revolving restaurant atop the so-called New Village in the Sky offers sweeping views of paddy fields, fish ponds and orchards.
Marc Faber, publisher of the Gloom, Boom & Doom Report, says China is overdoing it.
“It does not make sense for China to build more empty buildings and add to capacities in industries where you already have overcapacity,” Faber said. “I think the Chinese economy will decelerate very substantially in 2010 and could even crash.”
Huaxi has an even more ambitious project coming up: a 6 billion yuan, 538m skyscraper that would today rank as the world’s second tallest. The only loftier building is the new Burj Khalifa in Dubai.
Such undertakings figured in warnings hedge fund manager Jim Chanos delivered in January that China is “Dubai times a thousand.” The costs of wasteful investments in empty offices and shopping malls and in underutilized infrastructure will weigh on China, Chanos, president of New York-based Kynikos Associates Ltd, said in a speech at the London School of Economics.
“We may find that that’s what pops the Chinese bubble sooner rather than later,” Chanos said.
China has defied the global recession of the past two years and remained the fastest-growing major economy. GDP soared 10.7 percent in the fourth quarter. The government has provided 4 trillion yuan in stimulus spending and encouraged banks to lend a record 9.59 trillion yuan last year, trying to bridge the gap until demand for exports rebounds or domestic consumption takes off.
Last month, banks lent a further 1.39 trillion yuan — almost one-fifth of the target amount for the whole of this year. Also last month, foreign direct investment climbed 7.8 percent to US$8.13 billion. Retail sales during last week’s Lunar New Year holiday rose 17.2 percent from the same period last year, according to the Ministry of Commerce.
While China’s resilience has helped support the world economy, raising demand for energy and raw materials, the bursting of a bubble would have the opposite effect. Government efforts to wean the economy off its extraordinary support may roil markets.
Last month, the central government ordered banks to curb lending, which put China’s stock market into reverse. In a sign, in part, of how dependent the world has become on China, stocks and currencies slumped in places such as Australia and Brazil that supply commodities to China.
On Feb. 12, the eve of the one-week Lunar New Year holiday, China for the second time in a month ordered banks to set aside more deposits as reserves. The Shanghai Composite Index has fallen 8 percent this year, after gaining 80 percent last year.