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Rising China: The Seen and Unseen
Rising China: The Seen and Unseen
October 03, 2011
Originally published in Real Clear Markets
I just got back from a biotech conference in Changsha via Shanghai, the jewel of the new China. It was my first visit to the future home of capitalism and progress. These twin forces appear all but dead in Europe and on life support in the U.S., as a schizophrenic electorate frantically yanks the levers of democracy this way and that trying to regain a pulse.
First impressions may not be a reliable guide to the amazing changes taking place in China, but there is still no substitute for seeing with your own eyes. There is also much to appreciate that is unseen, as the trajectory of this ancient land and its rapidly modernizing people are being channeled by forces that are not all visible to the Western eye.
The spanking new airport at Pudong, Shanghai, the most modern and efficient I have ever seen, sits in stark contrast to the wall of 1950s pollution that smacks you in the face the moment you walk out the door. Forget about global warming. These people need to get a grip on sulfur dioxide, NOx, and particulate matter before they all die of emphysema.
The air is even worse in inland Changsha. The five-star hotel where I stayed was as top-notch as the hospitality of my hosts, yet the city smells like the inside of a catalytic converter. Any thought of doing regular business there evaporated along with my composure after spending an hour out of doors. When your eyes start to tear and your throat begins to burn from the sulfuric acid rising from your tortured lungs, you understand why pedestrians in China do so much hocking and spitting.
What accounts for this? The only reason the Chinese are madly building government-subsidized solar panels instead of SO2 scrubbers is because fashionistas in the west have told them that green technology represents the future. Purchase of these abysmally uneconomic renewable energy products by U.S. consumers are only made feasible by yet more government subsidies-paid for with money borrowed by the U.S. government from the same Chinese central planners. Talk about the unseen driving a double misallocation of capital. Americans bask in self righteousness while the Chinese choke to death on their own exhaust.
How long will citizens of both countries allow their standards of living to be artificially depressed to satisfy the religious itch of ecological extremists? You can walk across the Yangtze River hopping from coal barge to coal barge, a conga line stretching to the horizon. Do you really think solar panels on your roof are going to offset all that carbon? What happens when the subsidies dry up, as surely they will? You can expect the Chinese to have their own Solyndra moment when the economically unsustainable house of cards comes crashing down.
Despite the distortions, our Confucian friends are in a hurry to catch up with a standard of living we take for granted, and who can blame them? I never saw so many new cars in one place, with hardly a beater to be found. Buicks, even. In a week in China I came across fewer beggars and derelicts than I stumble over in five minutes in Harvard Square. Go up to the top of the Pearl Tower in Shanghai and you will see more tall buildings than you've seen in all your life. Think Citibank plus Trump Towers on steroids. You could plop Manhattan down and lose it.
What you don't see is the number of unsold condos or unoccupied units owned by speculators. It all becomes visible at night when the lights come on. Or don't. In Changsha on a walk through the park, I was practically accosted by a frenzied mob of real estate agents who had set up a half-mile long row of booths displaying photos of their partially built projects-everything from luxury condos to McMansions. When the Chinese real estate bubble pops it's going to be a doozy. It will be interesting to see if they mishandle the aftermath as badly as we have.
The biotech conference was a unique amalgam of science papers, economic treatises, and some kind of TV gala I didn't understand. Myriad government officials and bureaucrats were called on stage to sign dozens of documents somehow related to investments intended to turn Changsha into the Silicon Valley of the biotech industry. I was there as some kind of testator and honored witness, armed with my cautionary presentation of how the U.S. pharmaceutical industry has started to circle the drain.
In breakout sessions I got a lot of earnest questions which I tried my best to answer. The only pushback I got was from a government official who took issue when I questioned the effectiveness of central planning in trying to bootstrap an entrepreneurial nexus. Perhaps he missed my talk during the plenary session, where I outlined the two essential ingredients of a successful entrepreneur-burning ambition and a rebellious spirit. There is no shortage of the former in China, but the extent to which the latter is given free rein remains to be seen.