Building a replica of the Great Wall in Africa
Economic growth in China slows from above 10% to around 7.5% and the world holds its breath in anticipation of the economic fall-out. Just before the international financial crisis, Chinese companies started hoarding raw materials and commodity price started their meteoric rise. Then following the crisis, Chinese manufacturers drew down on commodity inventories not replenishing them at the same rate, and the so-called Commodity Super Cycle is declared dead by a host of respectable market analysts.
The Chinese economic phenomenon is certainly occupying a large part of the West’s intellectual capacity. Not a single week goes by without at least four or five reports, all looking at the Chinese economy from some angle, crossing my desk. If these reports have an indigenous origin, they generally praise China’s economic miracle, focussing mostly on the future, and glossing over the glaring anomalies that constitute the largest of all the Asian Tigers. But reports coming from more sober analysts without a vested interest in punting the Chinese miracle, take a different view.
“China’s economy remains heavily tied to bureaucratic, inefficient state-owned enterprises that produce about half of GDP and employ around a quarter of the labor force. Over half of the companies listed on the Shanghai Stock Exchange are SOEs, the direct result of the government’s preference for them as IPO issuers while private businesses are starved for capital. SOEs are so inefficient that they require loans at sub-market rates from the government banks, subsidized by low deposit rates.” This unflattering revelation is quoted from the most recent (July 2013) edition of Gary Shilling’s Insight blog.
Looking at the impact Chinese procurement has on our own economy, leads me to wonder about the efficiency of our modest but earnest attempt to create a better life for all Namibians. Our intentions are noble, but the major influence Chinese institutions and their way of thinking, have on our own institutions, is becoming more obvious by the day. Perhaps the most comparable, fundamental strategy, is the so-called series of successive 5-year development plans. Similar interventions were a signature of Stalin’s reign in Russia, and emulating the great destroyer of men, Chairman Mao dze Dong’s feeble attempts of holding a post-civil war China together, trying hard to find work for a small fraction of the whole population.
Another opinion piece I came across describes the Chinese economy as follows: “Research reveals that strong enforcement of property rights and stable, predictable, and non-confiscatory tax and regulatory regimes are essential to long-run economic prosperity. The key to China’s reform, and what the Chinese people want most, is John Adams’s “government of laws, not men” – even-handed administration of reasonable laws, not special favors for the connected few. Indeed, Finance Minister Lou Jiwei echoed Adams (and Adam Smith) when he proclaimed, “…resources should be allocated by prices and markets, not government officials.” This comes from an article by Michael J. Boskin, Professor of Economics at Stanford University, written for Project Syndicate, a group that promotes understanding of economic issues and the way these are covered in the popular press.
When I read these statements (sentiments) I can not ignore the striking similarities with the economic road we have embarked on so aggressively the past number of years. Our state is also the main economic driver and currently, the biggest provider of capital and liquidity. Our state is also fond of controlling a myriad of state-owned enterprises. These range from very successful if they operate as monopolies, to basket cases, where they have to compete against private companies. All but a few remain dependent on continued government bail-outs financed through the fiscus; most have a history of eroding capital and wasting resources; most have severe capacity constraints in terms of human resources, and almost all SOE managements think the problem can be solved by just throwing more money after the delinquent.
By my own calculations, if our government continues to artificially stimulate the economy at a rate comparable to the past five years, we will hit the 60% debt to GDP ratio within six or seven years, and 100% indebtedness in about eleven years. At that point we will be able to show fantastic nominal growth but I have a sneaky suspicion we will be left with a number of considerable asset bubbles, similar to but bigger by many orders of magnitude, than the property asset bubble we are happily fueling now.