Wednesday, June 27, 2007

Bridge to prosperity?

The greatest human migration in history (from China's rural areas to its rapidly-growing cities/megalopolises) will soon be aided by the world's longest bridge. (GW)

World's longest bridge to trigger eastern China economic boom

By Sean O'Grady
The Independent
June 26, 2007

The Chinese are famous for building the biggest wall in the world and now they're building the largest bridge.

The Hangzhou Bay Bridge will span 36 kilometres across the East China Sea. When it opens next year, it will be the longest trans-oceanic bridge in the world, and seven times longer than the Oresund Bridge between Denmark and Sweden, the pride of Europe. If it could be moved to the straits of Dover it would link England with France.

It is costing 11.8 billion renminbi (about £800m), of which 70 per cent is being put up by private sources and 30 per cent by state agencies. They will see their investment back via tolls and lower transport costs.

One partner, for example, is Youngor Group, with a 3.5 per cent stake in the scheme. Youngor is a huge conglomerate virtually unknown outside China. Yet Youngor more than likely made the Marks & Spencer or Next shirt you may be wearing. They need better infrastructure to export.

British shoppers are helping them pay for it: globalisation at work. Certainly, the bridge is an immense achievement. They're even building a roundabout in the middle of it with a visitors' centre for day trippers.

However, tourism is not the point. By shortening the journey time from the port of Ningbo to the economic powerhouse of Shanghai by a couple of hours, the bridge will further stimulate regional growth, (about 15 per cent a year).

This will mark another step along the road whereby eastern China, the Shanghai-Nanjing-Hangzhou triangle, becomes one vast sprawling conurbation, a "Greater Shanghai", sucking in poor migrant workers from the countryside. Think of 19th-century Manchester or New York at the turn of the 20th century and, with some multiplication, you have an idea of the scale of the movement of humanity fast approaching.

The bridge is also the last link in the motorway linking Beijing and the north to the booming eastern and southern seaboard including the super-wealthy Hong Kong and Shenzen, the latter the most spectacularly successful of the liberalised "Special Economic Zones" established by Deng Xiao-ping in the 1980s. Rolls-Royce has just opened a showroom there.

So the bridge is a fitting symbol of the new China, as well helping bring it about. It also demonstrates how skewed their economy is. Fixed asset investment accounts for more than 50 per cent of the Chinese national income (against 14 per cent in the UK) - more than any major economy anywhere in history in peacetime.

The mania for construction is all about. Clumps of tower blocks that make our council estates look bucolic; row upon row of villas, all new, many empty; underused Maglev railways. It gives the slight impression that China is one vast Potemkin village.

More seriously, this is an economy with domestic imbalances, every bit as serious as its external ones such as its celebrated trade surplus with the US ($200bn a year). Despite all the Starbucks and KFCs, the taste for Carlsberg and Chivas Regal and new Hyundais, Buicks and Audis on the roads, consumption in China is depressed and uneven.

The investment boom is mirrored by a savings boom, part of which has been channelled into the stock market, which, despite (or because of) its gyrations, is up 50 per cent this year. Everything seems geared to domestic industrial and infrastructure schemes that require huge amounts of energy (usually coal generated and dirty) and raw materials; relatively little is going into private consumption and foreign products and services. Hence that trade surplus and the inflated world price of copper, steel and oil.

Some 700 or 800 million farmers in rural areas and in the west of the country, the majority of China's 1.4 billion souls, don't do much "private consumption". Chinese leaders fret about these problems, not least because of the danger to political stability. The environment is less pressing but will move up the agenda as the air gets harder to breathe and the dusty haze hanging over the cities grows more toxic.

In China you often hear the word "harmony"used by officials. It's a Confucian concept being revived by the Communist Party to replace the Maoist egalitarian ideology quietly abandoned three decades ago. It's almost Blairite in its ambition to wash away class and geographical divisions with words. It's not enough.

The fundamental problem with China is that the market is simply not allowed to function properly. Subsidised energy prices, improving - but weak - private property laws, non-existent intellectual property rights, eccentric interest rate policies, a heavily regulated financial sector and equity and property market bubbles are good examples of dysfunctionality.

It all leads to prodigious waste. China needs £3 of investment to generate an extra £1 worth of output, a much higher figure than in the West. It also needs more energy to generate that output, and is inefficient even compared to rival India. Resources - human and capital - aren't allowed to flow smoothly into the most profitable projects. Greatest of all the muffled market signals is the exchange rate, which the government insists will alter only gradually.

A free-floating (and in effect revalued) renminbi would do much to restructure the economy (and improve relations with America). That, and more, is needed to bridge the gap between China's ambitions and her present condition. This is a nation that needs to create 27 million new jobs a year (roughly the UK's workforce) just to stay still. China is growing fast, but far too wastefully of funds, of commodities and of energy.


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