According to a recent video by SBS Dateline (Australia), China’s government has spent the last several years dictating “GDP Targets” and forcing citizens to produce massive quantities of housing and retail office space in order to meet those targets. While China has been successful in artificially inflating their GDP numbers, the buildings themselves remain unused and unoccupied.
As analyst Gillem Tulloch explains in the film:
“[China is experiencing] a property bubble, the likes of which I don’t think we’ve ever seen… It’ll make the United States’ pale in comparison. It’s said that there’s around 64 million empty apartments in China.”
Since many governments, including the United States, frequently point to increasing GDP as an expression of economic growth, it is understandable that the Chinese government wants their GDP to be as high as possible. But in truth, the number itself can be very misleading.
Gross Domestic Product refers to all of the money spent within a nation, but there is no way to distinguish between government & private spending when calculating GDP. Consequently, there is no means of determining whether the spending actually improved the lives of direct consumers based on their own values, or instead reflected only the whims of the politicians and bureaucrats dictating how the money was used.
Tulloch describes the situation in China this way:
“It’s essentially the modern equivalent of building pyramids. It doesn’t really add to the betterment of people’s lives, but all it does is promote GDP growth… It’s basically happening because China is a command economy, and the Chinese government can basically dictate where resources are spent.”
According to the film, while China’s government is spending extraordinary amounts of money (and labor) on building these major infrastructure projects, they remain unoccupied because they are simply too expensive for the average Chinese citizen to rent. The Chinese government’s spending on these projects is reflected in its impressive increases to GDP, but none of this so-called growth translates to improved standards of living for the people of China, who must now pay for millions of unwanted buildings with their taxes.
Many economists, particularly those from the “Austrian School” frequently point out that when government policies such as credit expansions, tax incentives & subsidies promote the production of goods & services which don’t meet consumer demand in a free market, the supposed GDP growth reflected by increased spending is unreliable as a measurement of economic success.
What sometimes looks like a booming economy is, in fact, a bubble and not meaningful economic growth at all. According to Austrian Business Cycle Theory, as misallocated resources build up in an economy, the inevitable consequence is a painful correction (known as a “bust”) that puts many people out of work as the capital structure shifts towards producing different goods & services.
The United States experienced this firsthand with its own housing bubble and financial collapse, but it seems that China could be poised for a much larger problem.
View the full SBS Dateline video here:
