The Ghost Town of Ordo in Northern China

Most of the analysis on China from insiders makes perfect sense to me:

  1. That China’s rapid growth is ultimately a function of household repression
  2. That massive accumulation of US Treasuries or some foreign asset is necessary to make this scheme work
  3. That easy lending is necessary to make this scheme work.
  4. That the transition towards a more balanced economy will be “tricky” to say the least.

What I don’t quite get is the common presumption that China’s investment must be overinvestment or even “malinvestment”. For the most part the Chinese are building the types of things that we strongly suspect human being will want to use: houses, roadways, office buildings, airports, trains, etc.

There are also lots of people in the world. Many of those people currently don’t have those things. If they did they would be far more productive than they are today. It seems the key is getting the people to the things.

What makes this even more puzzling is that it is my understanding that many of the poorest people in the world live in rural China. This makes them excellent candidates for getting together with the capital.

Many of the rest live in rural India. Obviously there are some cultural and political obstacles in the way of getting those people to the capital. However, over the grand sweep of history its not clear that they are fundamentally insurmountable.

Moreover, it seems possible to use international trade to do a bit of a two-step. Moving more people out of rural China could bid up agricultural prices, making intensive farming more profitable all around the world. This would then produce enough food to allow for the emptying out of more of rural China.

This to me is what makes “catch-up” growth different. You don’t have to guess at what people might want and how to produce it cost effectively. You can turn on the TV and look at Europeans and Americans. Then you can just give people that. You can even invite some Europeans and Americans over and let them show you how to build it.

All you need to do is have the people. And, if its one thing China has, its people.