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Lessons Unlearned

November 28th, 2012 - 3:20 pm

Lynette Ong on China’s Potemkin skyscrapers:

Underwriting the impressive facade, however, is an incredibly risky strategy. Governments borrow money using land as collateral and repay the interest on their loans using funds they earn from selling or leasing the same land. All this means that the Chinese economy depends on a buoyant real estate market to keep grinding. If housing and land prices fall dramatically, a fiscal or banking crisis would likely soon follow. Meanwhile, local officials’ hunger for land has displaced millions of farmers, leading to 120,000 land-related protests each year.

The recklessness can be traced to two things: First, local Chinese officials are evaluated for promotions and other rewards based on how well the economy they manage performs. Construction and real estate activities are among the most straightforward ways to stimulate growth. White-elephant construction projects thus offer eager officials a perfect opportunity to impress their political superiors, even if massive developments do not necessarily make any economic sense. Take, for example, the city of Ordos in Inner Mongolia: Its elaborate urban infrastructure and its sea of new flats and office blocks are nearly all unoccupied, making it China’s largest ghost city.

I’m reminded of a lesson learned years ago reading Austin Bay and James Dunnigan. Third World leaders (and I include the old Soviet Politburo in that definition) always loved to buy or build lots and lots of missiles and tanks, and then put them on display.

It’s comparatively easy to own a lot of impressive-looking equipment, and to march around lots of young men in smart uniforms. You count the tanks, you range the missiles, you raise the divisions — and on paper you have what looks like a fearsome military.

Of course, then that military goes to war and you find it doesn’t actually, you know, fight very well. Or maybe you never have to go to war, but you find that building all those missiles and raising all those divisions have devastated what little economy you ever had.

Exhibit A for the former is the Iraqi Army circa 1990. Exhibit A for the latter is the entire Soviet Union just one year later.

What’s hard — what’s really, really hard — is training all those young men to fight. It’s hard on the equipment, which will need extra maintenance or earlier replacement — or forces you to build your stuff up to Western milspec. All that training costs money you don’t have for fuel and bullets, and tears up the countryside. And it keeps the men from doing typical Third World army tasks like helping to bring in the crops. But in the end, you get an army that can fight. You’ll also end up with a smaller military that might not look as impressive on paper.

China is putting up entire new cities like a teenage boy pours on the Drakkar Noir before his first date. Neither is likely to end with a big score.

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