Greece is the word. Or is it? If it weren’t for the house of cards that is the Eurozone, the world wouldn’t be talking about the Greek economy – not when Chinese economic growth is creating the equivalent of a new Greece every three months.
But what if all is not well in China? What if the political mismanagement that has laid waste to Greek prosperity is also to be found in the People’s Republic, but on a massively greater scale?
Writing for Project Syndicate, Minxin Pei argues that the idea of the meritocratic – if undemocratic – Chinese system of government is a myth used to justify the undemocratic part of the equation. In fact, the spectacular fall of Bo Xilai (until recently a rising star in the new generation of Chinese leaders) is an indictment of the whole system, not just one individual:
- "Bo’s case is not the exception in China, but the rule. Contrary to the prevailing perception in the West (especially among business leaders), the current Chinese government is riddled with clever apparatchiks like Bo who have acquired their positions through cheating, corruption, patronage, and manipulation."
Pei documents various abuses, but from a global economic perspective, the most worrying aspect is the manipulation of growth rates:
- "…visitors to Chongqing marvel at the soaring skyscrapers and modern infrastructure built during Bo’s tenure there. But do they know that Bo’s administration borrowed the equivalent of more than 50% of local GDP to finance the construction binge, and that a large portion of the debt will go unpaid?"
Again, the author emphasises that this is part of a much wider pattern:
- "Chinese officials are under enormous pressure to demonstrate their ability to produce economic results quickly. One sure way of doing so is to use financial leverage, typically by selling land or using land as collateral to borrow large sums of money… as Bo did in Chongqing. The result is promotion for such officials, because they have delivered quick GDP growth. But… Local governments are saddled with a mountain of debt and wasted investments, banks accumulate risky loans, and farmers lose their land."
So, what the Chinese experience tells us is this: Running up unsustainable levels of debt really is a surefire way of boosting economic growth – as long as you don’t care about the long-term consequences.
Lucky for Britain that we don’t have any politicians like that!