Thursday, 27 May 2021

Keynesian economics with Chinese characteristics

China appears to be wealthy. But if it is, wonders Per Bylund in this guest post, why is there so much (Keynesian) waste right out there in the open?

China: A Keynesian Monster

by Per Bylund

I recently spent two weeks traveling in the People’s Republic of China (PRC), a vast country with many contrasts: old vs. new, poor vs. rich, traditional vs. modern, East vs. West. While it is a strange experience with many impressions, what’s most striking is the obvious and contradictory economic contrast between wealth and waste.

Chinese city skylines in the economic development zones consist of business-district skyscrapers mixed with high-rise apartment complexes at least 30 stories high. The latter exist in groups of a dozen or so buildings of identical designs shooting far up into the sky, sometimes placed in the outskirts to facilitate the city’s expansion or change travel patterns according to some (central) master plan for the city.

The boxy skylines are interrupted by vast numbers of tower cranes in the many construction projects that produce more high-rises and skyscrapers at impressive speeds. The city is conquering the countryside, and devouring the surroundings much like a swarm of locusts.

This image is one of production, a society experiencing enormous economic growth and wealth creation.

But travelling, as the day gives in to night, shows a very different picture of these sprawling Chinese cities. While the setting sun makes the tower cranes stand out even more, what is obviously missing is the obvious sign of civilisation within these hulking towers: artificial lighting. Many of these newly constructed buildings become silhouettes against the sunset that are as dark as a dead tree trunk. They are dead hulks, empty carcasses without any signs of life.

One can stand in the middle of the city watching the glass-and-metal skyscrapers wrapped in neon lighting, as one would expect. Yet among them see many dark shapes of buildings that are empty – if not dead. These buildings are not necessarily new and move-in ready, they are simply uninhabited and unused.

This image is one of wasteful spending and immense economic errors. The contrast is as puzzling as it is scary. It tells us something important about the nature of the recent Chinese economic miracle: that it is fundamentally fake.

The Chinese economy obviously relies very heavily on state-sponsored, state-planned projects such as these constructions of buildings. It probably wouldn’t be much of an exaggeration to say that the Chinese economy is a Keynesian jobs project of outrageous scale, which also means that is as removed from real value creation as any Keynesian undertaking.

The much talked about “Belt and Road” project is the same thing on an international scale. The project aims to recreate the silk road with modern infrastructure, connecting the Far East with Europe via both land and water. Consisting of numerous infrastructure projects in about 60 countries and trade deals to leverage the projects, the OBOR is a political project to connect the East and the West. It is state-planned and state-sponsored, and intended to, at least during the build phase, create projects primarily for Chinese companies abroad (though the immediate effect seems to have been capital outflow). It will most likely boost Chinese GDP, just as intended, and will be a catastrophic failure due to its reliance on planning rather than markets. But as states tend to think of GDP statistics as actual economic growth, rather than as a crude and faulty measure of it, the project may seem like a success at first.

What China teaches us about economics and economic policy is the lesson that is generally not provided in college classrooms: the important distinction within production between value-creation and capital consumption. The story of China’s economic development is to a great extent one of unsustainable, centrally planned growth specifically in terms of GDP — but a lack of sustainable value creation, capital accumulation, and entrepreneurship.

Production creates jobs even if what is produced is wasteful infrastructure projects, ghost cities, or only ghost buildings in otherwise inhabited cities. But those jobs only exist for as long as the projects are underway – that is, for as long as there is already created capital available to consume, domestically or attracted from abroad.

Per Bylund, PhD, is a Fellow of the Mises Institute and Assistant Professor of Entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship in the Spears School of Business at Oklahoma State University, and an Associate Fellow of the Ratio Institute in Stockholm. He has previously held positions at Baylor University and the University of Missouri. Dr. Bylund has published research in top journals in both entrepreneurship and management as well as in both the Quarterly Journal of Austrian Economics and the Review of Austrian Economics. He is the author of two full-length books: The Seen, the Unseen, and the Unrealized: How Regulations Affect our Everyday Lives, and The Problem of Production: A New Theory of the Firm. He edits the Austrian Economics book series at Agenda Publishing, and edited the volume The Next Generation of Austrian Economics: Essays In Honor of Joseph T. Salerno, published by the Mises Institute. He has founded four business startups and writes a monthly column for Entrepreneur magazine. For more information see
His article previously appeared at the Mises Wire.

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