China's "Ghost Cities" Go Mainstream, But Will Anyone Actually Notice?

From Business Insider comes news that 60 Minutes has done an in-depth profile of China's ghost cities - only a couple years after many of us started noticing this creepy and telling phenomenon, but, hey, better late than never.  BI has plenty of good screenshots worth perusing, but here's the whole video for your viewing pleasure:


After seeing this crazy video (or any of the others that have been floating around since 2009), how can anyone steadfastly declare the inevitability of China's future economic dominance or take headlines like the following seriously?

BREAKING: China sets 7.5% goal for 2013 growth with 3.5% inflation target
— Bloomberg News (@BloombergNews) March 5, 2013

(Hint: they can't.)

Umm, Yeah, About Those Amazing Chinese Solar Subsidies...

Over the last several years, China's subsidization of its domestic solar panel industry has attracted ire and envy in the United States.  Bankrupt US solar producers and the US politicians who subsidized them have been quick to deride pernicious Chinese subsidies - rather than their own corporate or policy mismanagement - as unfairly creating a global export juggernaut that has doomed their business.  I've already discussed the US Department of Energy's 2011 "blame China" parade following Solyndra's collapse, and it appears that Abound Solar and its political champions are following suit:

Abound Solar filed for bankruptcy earlier this month, succumbing to intense competition from China that has sharply driven down the cost of solar panels, said Thomas Tiller, who served as Abound's chairman.

Tiller said the Chinese government provided about $35 billion in subsidies to Chinese solar companies, resulting in sharp growth in production capacity that outpaced demand and pushed down the price for panels by more than 50 percent in just a year.

"Such a severe market change made it difficult for Abound and others to survive," he said in remarks prepared for a House of Representatives oversight committee hearing.

Prior to filing for bankruptcy, Abound received about $70 million of a $400 million loan guaranteed by the U.S. Energy Department.

The drop in the solar panel price was bigger than the Energy Department and other experts expected at the time the Abound loan was finalized, David Frantz, acting executive director of the department's loan program, said in prepared testimony.

Meanwhile, American industrial policy fetishists have been quick to note the dominance of the Chinese solar industry as proof that the US should have mirrored China and thrown even more taxpayer money at our solar panel producers.  For example, here's FP's Clyde Prestowitz throwing out a blatant I-told-you-so back in March of this year:

The solar panel industry was identified by the Chinese government long ago as a target of special attention. Indeed, I recall being in a White House meeting in 2009 to discuss the prospects for the U.S. solar panel industry. I told the administration's top economists then that unless they were prepared to match the enormous incentives China was planning to provide to its industry ,the U.S. industry would be blown out of the water. They weren't prepared to match and the industry is, in fact, now being blown out of the water. Anyone who had had the experience with Japan or who had an ounce of understanding of how strategic industry targeting and export-led growth works could have foreseen exactly what has come to pass as China has poured about $34 billion of subsidies into its industry which exports about 95 percent of its production. That would be the loss of several thousand U.S. jobs and the bankruptcy so far of 12 U.S. companies. This is not to mention the inevitable reductions in R&D spending and innovation in the face of the tsunami of imports from China.

Prestowitz, much like the US Steelworkwers union, appears to think that the billions in subsidies that the US government has thrown as American solar producers are woefully insufficient, and that just a few billion more would have all but guaranteed a globally-dominant US industry that's just brimming with profitability... you know, just like the, err, Chinese industry:

China’s top ten photovoltaic makers have accumulated a combined debt of 17.5 billion U.S. dollars so far, leading the whole industry to the brink of bankruptcy, data from U.S. investment agency Maxim Group showed.

LDK Solar, the world’s second-largest maker of solar wafers, and Suntech Power, the world’s largest solar panels producer, are the mostly likely to be headed for bankruptcy, Maxim noted....

Based on preliminary results of domestically traded photovoltaic companies for the first half, nearly 80 percent have slashed their earning forecasts while the top ten brands, listed overseas, posted a loss of 612 million U.S. dollars in the first three months this year.

Yingli Green Energy Holding Co., another leading solar power company in China, said over the weekend that the company cut its delivery growth forecast of photovoltaic modules from 15 percent to 13-14 percent for the second quarter, and gross margin from previous 4.5-4.9 percent to around 4.5 percent for the period.

“A gross margin of 4.5 percent indicates a loss, for sure, in the second quarter,” said Meng Xiangan, vice chairman of the Chinese Renewable Energy Institute. According to Meng, gross margins for China’s ten leading photovoltaic makers were all below 10 percent in the first quarter, led by Canadian Solar, who earned a gross margin of 7.7 percent but still reported a loss of around 20 million U.S. dollars. What’s worse, cash flows in Chinese solar makers are even tighter as many have rolled their debts over to 120 to 180 days, according to investment firm Helix Investment Management.

Gee, so what happened?  How could the subsidized Chinese juggernaut now be on the brink of disaster?  If only someone could have predicted this.  Oh, wait:

As tensions heighten over questionable subsidies and anti-dumping cases against China’s solar panel manufacturing sector, most non-Chinese citizens are quick to claim that China is robbing the industry from other countries. Indeed, China’s doubling of solar panel exports in 2009 and 2010 was followed by a string of bankruptcies of solar firms in other countries, including Germany and the US, in 2011. However, despite China’s huge gains in its global market share, its solar sector now likely faces a serious consequence of its explosive growth: overcapacity. Manufacturing capacity of solar panels is outpacing global demand, and as a result the prices of solar products have plunged; and now many Chinese solar manufacturers “face ‘suicidal’ prices on excess output” and are slashing prices in order to liquidate inventory.

So, it appears that all those Chinese (and American and European and...) subsidies have led to massive overproduction and a collapse in solar prices, and Chinese solar companies (and their global counterparts) simply can't stay afloat in the current market.  Of course, the current US antidumping and countervailing duty investigations of Chinese solar panel imports certainly aren't helping the Chinese industry's bottom line, but those cases very likely wouldn't have happened without all that sweet, sweet government cash to depress prices and make the industry vulnerable to anti-subsidy allegations.

Thus, the very subsidies that were designed to ensure Chinese solar industry dominance have helped cement its near-term demise (and brew up a couple trade disputes in the process).  Yes, the Chinese government might swoop in and "save" its ailing solar industry - it certainly has enough spare cash lying around to do so - but that salvation would come at a clearly huge expense.  The debt-ridden US government has no such "luxury," but considering the past few years of subsidized failures like Solyndra, Abound Solar and the rest, coupled with the experience of the super-subsidized Chinese solar failures, one must really wonder if maybe - just maybe - we're better off for it.

Debunking US Politicians' China Infrastructure Love... Again

US politicians, particularly Democrats, have been enamored with China's massive infrastructure spending for years now.  I've already taken a few swipes at this misguided affection, but it seems that it - and the underlying assumption that massive new spending on US infrastructure will boost jobs and jumpstart the flagging economy - will again play a prominent role in the 2012 elections.  For example, Massachussetts Senate candidate and Democratic National Convention headliner Elizabeth Warren released a new TV ad during the 2012 Olympics opening ceremonies, in which she questioned why the US government wasn't spending more on infrastructure when so many citizens are out of work and our "competitors" like China are spending like crazy on their roads, bridges, trains and cities.  Warren certainly isn't alone: President Obama has long been a fan of comparing US and Chinese infrastructure spending, and has been on the campaign trail trumpeting the notion that infrastructure spending is an obvious and uncontroversial jobs plan.

What Warren, President Obama and their big spending friends seem not to understand, however, is the simple and obvious fact that comparing US infrastructure spending to Chinese spending is a really, really dumb idea.  First, given the differences in the countries' governments, budgets and stages of development, their rhetorical ploy is a classic case of comparing apples to oranges, as made clear in this lucid critique by Reason's Ira Stoll:

The first problem is mathematical. U.S. gross domestic product is about $15 trillion a year. Increasing infrastructure “investment” to the 9% Chinese level that Warren cites would mean an additional $1 trillion a year in government spending. That’s an immense spending increase. To put it in context, the entire federal government spent about $3.6 trillion in 2011, on revenues of about $2.3 trillion.

Where would this money come from? Not tax increases, right? Warren has already reportedly promised nearly a trillion dollar tax increase, spread over ten years, by raising the estate tax, imposing the Buffett Rule, and letting the Bush tax cuts expire for those earning $250,000 a year or more. But that money, she has said, would go toward deficit reduction. If Warren really wants to spend $1 trillion a year more on infrastructure, she’d need to eliminate all national defense spending ($705 billion) or all Social Security spending ($730 billion) and then find another more than quarter trillion dollars. Or else she’d have to go on the biggest borrowing or taxing binge in American history.

Math, though, is hardly the only problem with emulating China’s approach to infrastructure spending. History is another. America and China are at different junctures in our development. America built a lot of bridges, tunnels, and highways in the 1950s and 1960s when China was stuck under Communism. A lot of China’s spending now isn’t going to outpace America but to catch up with things that we’ve had here for decades, like potable water and a population that is mostly non-rural.

Finally, not all of China’s infrastructure spending is worth emulating. The Chinese Communist treatment of those who stand in the way of their projects makes Robert Moses, the mastermind of so many of New York’s neighborhood-destroying highways, look like Mother Teresa. For example, the group International Rivers reports that 1.2 million people were displaced to construct the Three Gorges Dam. That $40 billion project also reportedly had devastating effects on the Chinese river dolphin, river sturgeon, and paddlefish.

China is able to spend so much on infrastructure because it’s an unfree country. It lacks the rule of law that lets American community groups wage legal and political battles against big government projects. Warren may protest that when she’s talking about “infrastructure” she mainly means maintaining existing roads and bridges, not building brand new projects that flatten urban neighborhoods or destroy scenic rivers. But that’s not what’s happening in China.

Stoll's criticisms are all valid, but he only hints at what, in my opinion, is the broader and more systemic problem with using China as some sort of model for a US infrastructure/jobs plan: the well-documented list of failures associated with the Chinese government's attempts to direct, via central planning, huge amounts of money to ambitious infrastructure projects in order to support domestic employment.  Such failures include not only the nasty dislocation issues that Stoll mentions, but also rampant fiscal mismanagement, capital misallocation, outright fraud and corruption, and, because of serious, often ignored safety problems, even death.

There is perhaps no better example of many of these facts than China's "ghost cities" - multitudes of literally-empty apartments and shopping malls built in the middle of nowhere in order to boost Chinese employment and GDP. (Seriously, if you haven't taken five minutes to watch the breathtaking video provided at the link above, do it now.)  But many recent stories about Chinese infrastructure projects make clear that these ghost cities have a lot of company:

• According to one of the Chinese government's top central planners, China's transportation construction initiative is all about "excessively big, redundant construction and unfair competition."  In the linked interview, he details how these projects have resulted in giant, unused "roads to nowhere" and a dangerous rail system that has not been reformed due to massive bureaucratic pushback.  As I concluded at the time: "government mismanagement of China's supposedly-awesome infrastructure spending has resulted in many wasteful - and often dangerous - bridges, highways and railways. And despite serious problems surrounding China's vaunted rail program, the government is quietly dumping even more money into the current, broken system in order to maintain arbitrary GDP and employment benchmarks."
• China's overinvestment in shipping transport, combined with an unexpected slowdown in the Chinese economy, has resulted in a huge Chinese "ghost fleet" of cargo ships roaming the high seas looking for business.  (Insert pirate noise here.)
• China's enormous spending on construction projects for the Olympics - lauded at the time by myriad fans of both architecture and central planning - may have produced fantastic venues for the 2008 games, but many of those arenas now sit empty and decaying (even in bustling Beijing).  And the Chinese government is struggling to pay the tab for these once-beautiful-now-creepy "ghost facilities."  Paying off the "Bird's Nest" alone will cost almost $500 million and take 30 years.  Oof. 

And today we see a lengthy new expose of China's big subway project, finding that it, like its infrastructure brethren, is riddled with waste, debt, mismanagement, danger and corruption (emphasis mine):

"Construction will cost at least 1 trillion yuan in total," said Chen Xunru, a member of the Chinese People's Political Consultative Conference, who conducted research into subway construction and delivered a speech on his findings to the CPPCC's annual meeting in March.

Experts are concerned that the construction could strain the resources of some city governments and plunge them heavily into debt.

They are also worried that the cities may not have taken account of the possible long-term costs of operating and maintaining the network. Moreover, there are concerns that the large-scale move toward construction has resulted in a shortage of trained professionals, which in turn could lead to reduced safety levels...

[T]he belief that a subway system is a symbol of a modern metropolis means smaller cities are also keen to build. "They see subways as their chance to polish their civic image and look like a modern city," he said.

Amid the raging competition between many similar-scale cities, some lost their ability to think rationally. "Some cities are mapping subway networks that will cost their entire combined income for five years," he said.

The NDRC imposed minimum requirements to prevent financially weak cities from building subways: A city must have an urban population more than 3 million, annual GDP must exceed 100 billion yuan, the local government budget must be at least 10 billion yuan, and the one-way traffic flow must reach 38,000 at peak time.

But, caught in the grip of subway fever, some cities have acted inappropriately.

In 2008, the State Council eased its grip on subway construction in the hope that infrastructure construction would further boost the economy. Zhang Yan, secretary general of the China Association of Civil Engineers, said that some cities manipulated the figures to meet the minimum requirement and obtain the green light: "Except for those in the first-tier, most other applicant cities submitted exaggerated figures for local one-way traffic flow."

Adding to the problems, enthusiastic cities tend to overlook the huge construction costs and overestimate the potential operating income. The heavy financial burden on local governments has crushed some underprepared cities...

Even Shanghai, with a population of 23 million and GDP of 1.9 trillion yuan in 2011, has been dragged into debt.... Ying Minghong, board airman of Shanghai Shentong Metro Group Co, said that only Line 1 is profitable. The income from ticket sales and advertising covers its daily operating costs, but is not enough to pay for maintenance or the interest on its loans. The city's other lines are in debt....


"I doubt there are more than five people in our company and the local government who know how much money the Shanghai metro loses every year. The problem is that it's not a simple mathematical question of adding the government's yearly subsidy and subtracting the metro's annual operating costs," said Yang....

According to a Xinhua News Agency analyst, who spoke on condition of anonymity, the total liabilities of the Shanghai metro exceed 100 billion yuan. However, the situation is far from unique....

It's estimated that in 2015, when the [Beijing] network reaches 581 km, the system will have an operating loss of 4.3 billion yuan, despite the huge traffic volume, Wu said. If depreciation and accounting costs are included, the loss will hit at least 17 billion yuan....

Many cities now spend money on subway equipment that consumes energy and pushes up construction costs, but doesn't improve safety, according to Wang Mengshu, of the Chinese Academy of Engineering....

One reason behind the spiraling cost is that builders blindly seek size and luxury in most cities, said Wang. "When the first subway line was built in Beijing, the platforms were smaller than 8,000 square meters. Now, none of the new platforms is smaller than 12,000 square meters," said Wang....

One of the drawbacks of the complex systems is that they use too much energy, with the power to drive the engines accounting for just 30 percent of total energy consumption.

The unnecessary facilities also pose potential hazards to subway operations. "Once a small problem occurs, the whole line is halted," added Wang.

This is partly because decisions about subway construction in many cities are not made by professionals. "Since the construction of subways in most cities is guided by the government, officials often have the final say in design and construction, instead of the experts," said Wang.

The November 2008 collapse of a subway construction site in Hangzhou, Zhejiang province, that killed 21 workers is a good example of the situation, he said. The local government blamed violations of construction regulations and technical failures. "But I think the accident exposed the serious consequences that can result from excessive interference by government officials in subway construction," said Wang, who inspected the accident scene.

"It normally takes three years to build a subway station of that size, but the construction period for that line was reduced by one-half by the city government," he said, adding that local government saw the completion of the subway line as an achievement of its tenure and thus attempted to reduce the construction period.

The CPPCC's Chen believed that the construction boom has resulted in a shortage of professionals: "Construction teams in many cities were scrambled to meet a deadline and untrained workers were hired. Safety cannot be guaranteed."

The idea that Republicans, conservatives and even most libertarians oppose state spending on infrastructure is a nonsensical strawman argument.  What these groups (myself included) oppose is massive deficit spending on centrally-planned infrastructure projects in an attempt to boost domestic employment.  This is what Ms. Warren and President Obama are proposing, and while their comparison to Chinese infrastructure spending is inapt for several reasons, their focus on China's experiences is helpful in one respect: it demonstrates the folly of thowing billions of taxpayer dollars at shiny new infrastructure projects to "grow jobs" in America.  Indeed, China actually provides the ultimate cautionary tale for people attracted to Warren's and Obama's plans to support US jobs via huge increases in federal government spending on US roads, bridges and trains.

Warren's and Obama's China infrastructre rhetoric is not just comparing apples to oranges; it's comparing apples to rotten oranges.  And fiscal conservatives are smart to avoid taking a bite.

UPDATE: Colin at ToGetRichIsGlorious adds via Twitter: "And look at Beijing's sewers!"

The Continuing Absurdity of Breathlessly Praising China's State Capitalism

Back in April, I posted an astonishing video of China's "ghost cities" - sprawling, brand new cities replete with malls, office buildings and apartments, but with literally no actual residents.  Since then, I've posted other examples of how China's state capitalist system is creating massive distortions in its domestic economy.  At the time of my original posting, I asked a simple question:

After watching this video, how can anyone - anyone! - seriously advocate copying China's state-run approach to economic policy?

Yet people keep doing it.  Indeed, earlier this month former SEIU head Andy Stern praised "China's superior economic model" and added, quite ridiculously, that "the free-market fundamentalist economic model is being thrown onto the trash heap of history."  President Obama's also described China as an economic paradigm (at least on infrastructure spending).

Something tells me that Mr. Stern and his fellow sinophiles hadn't seen that first video and certainly hasn't seen this doozie about China's biggest ghost city, Ordos:



Blogger Unconventional Economist comments on the profoundly negative implications that, if repeated elsewhere, this implosion could have in China:

[A] video from NTD Television shows that Ordos’ home prices are crashing, having fallen by almost one-third. Meanwhile, construction has finally ground to a halt, leaving many construction workers unemployed.

With the real estate market accounting for around 10% of China’s GDP growth, and affecting many related industries, the concern is that the property downturn might become widespread, dragging China into a sharp recession.

Yeesh.

Meanwhile, Carl Walter and Fraser Howie debunk the widely-held myth that China's massive foreign exchange reserves will allow the government to easily fix the huge mess that is the Chinese banking system:

There's a growing consensus that China's banks are in trouble. Having overextended themselves over the past few years in a flood of government-directed credit, banks now must face rising problems with bad loans—a lot of this is basic math. But myths about how Beijing could solve the problem abound. Perhaps the most pervasive is that the government can always tap its $3 trillion in foreign-exchange reserves, and so no one should worry about a financial crisis. The truth is very different....

The role of reserves in any bank bailout is a central question now because if forex reserves can't save the banks, it's possible that nothing can. In the late 1990s, the last time Beijing faced a banking crisis, bad loans ultimately totaled more than four trillion yuan (more than $600 billion in today's exchange rate), more than one-third the size of the economy and four times national fiscal expenditures. That was tough but ultimately manageable for policy makers using a combination of foreign strategic investors, equity raising via partial share sell-offs to outside investors and, most importantly, the country's forex reserves.

But since then, the economy has tripled in size while on-balance-sheet bank lending has reached 130% the size of the economy. As nonperforming loans inevitably increase, the scale will quickly become unmanageable. In the face of ongoing national budget deficits of around $160 billion, the foreign-exchange reserves once again constitute the only pool of capital that would be sufficient for a bailout.

Sure enough, some see this perceived strength as a great comfort. In this view, Beijing could use its forex piggy bank to smooth over any problems in China's export- and investment-led growth model. But this fundamentally misunderstands what the foreign-exchange reserves are and what they can—and can't—be used for.

The authors go on to provide several key reasons why the "forex reserves fix" would be, at best, extremely messy and, at worst, might be totally unworkable for China's troubled banking sector.  They conclude: "A huge part of the wealth that has been created by China is stuck in the wrong place: offshore. To bring that wealth onshore can only create significant inflationary pressure, which, in turn, destroys the very wealth that has been created at home."

So to recap: China's housing and construction sector is a mess, and its bank system is a mess - all because of the glorious state capitalist model that Mr. Stern and others demand the United States emulate.

Yes, yes, let's like totally copy this system.

Thursday Quick Hits

Here's some more light reading to get you ready for the weekend:

• Cato's Sallie James is back banging her TAA drum again (fortunately for us); this time, she exposes the "flawed logic" behind certain misguided arguments in support of TAA.  James actually raises some of the same arguments that I raised in my comments to this post (but to much better effect, as usual).  Meanwhile, the GOP appears to be stiffening in the face of the Obama administration's TAA demands.

• David Harsanyi beautifully explains why "Buy American" is inherently un-American.  Here's my favorite part: "Nobel Prize-winning economist and New York Times columnist Paul Krugman once explained in his book 'Pop Internationalism' that if he could stress one thing to students, it would be that 'international trade is not about competition, it is about mutually beneficial exchange.' Wasserman Schultz is bright, so she must know all about the counterproductive history of protectionism. Then again, when she says 'Buy American,' maybe she just means 'Buy Union' — buy union because taxpayers subsidize GM and it pays workers and they subsidize unions that subsidize the right candidates. A mutually beneficial exchange."

• Jonah Goldberg quickly explains why E.J. Dionne's liberal fantasies about copying Chinese and European industrial policy are anything but "innovative."

• Utterly unsurprising news of the day: the government subsidizes consumption of Chevy Volts, and people - this time, car dealers - end up gaming the system.  Shocking, I know.

• Iowa Congressman Steve King calls for an end to US Ethanol subsidies.  Yes, you heard that right - a guy representing IOWA supports terminating America's Corndoggle, yet certain presidential candidates (and the current guy in charge) refuse to do so.  Panderiffic! 

• After five grueling months of not-trying-at-all, Treasury Secretary Tim Geithner announces that the administration's vague-and-not-very-bold corporate tax reform "plan" is on indefinite hold.  Meanwhile, "Executives from major U.S. businesses told lawmakers Thursday that they would be willing to give up major tax breaks in exchange for a lower top corporate tax rate." Great timing as usual, Mr. Secretary (and the USA still has the highest corporate tax rate in the industrialized world - sweet).

• More swine at the trough - this time, textile congressmen are "worried" about the imaginary textile section of a thus-far-imaginary FTA, the Trans-Pacific Partnership.  Somewhere, the ghost of Mancur Olson is nodding with approval.

That's all for tonight.  Go Mavs!

Chinese Industrial Policy, ctd.

Last week, I posted an amazing video of China's "ghost cities and malls" which unquestionably demonstrated the myriad problems with the country's centrally-planned economy, despite its eye-bugging growth.  Adding further empirical support to my anecdotal evidence is a great new paper from Heritage Foundation's Derek Scissors which compares the US and Chinese economies and asks "which is bigger [and] which is better."  If you've seen last week's video, Scissors' answer shouldn't surprise you in the least.

After thoroughly analyzing each country's GDP, employment, economic freedom, energy & environment, international trade position, fiscal policies, labor productivity and other factors (and be sure to check out the snazzy charts), Scissors rightly concludes:

The PRC’s rise from poverty due to the marvelously successful market reforms introduced in 1978 has obscured serious economic weaknesses compared to the U.S. These weaknesses have been exacerbated in important ways by renewed Chinese state intervention starting around 2003. America should not lose track of its advantages over China—in wealth but also in natural resources, and in surprising areas such as employment. Most important, the U.S. should not make the error of mimicking unwise Chinese policies, and should instead focus on getting the American house in order.

I couldn't agree more, and have said as much many times here.  Scissors then advises:

To compete successfully with China, the U.S. should:

Limit federal control of lands to defense needs and preservation of natural and cultural phenomena. The Department of the Interior should avoid resource management, shown to distort the economy and reduce prosperity;

Immediately and sharply cut the federal deficit. Congress must ignore claims that deficit spending somehow creates wealth, as it actually forces the nation’s capital toward low returns;
In particular, reduce subsidies of every kind. At this point, energy subsidies are especially damaging; and

Ensure a well-educated and growing labor force. The Departments of Education and Justice should stress immigration transparency and education diversity, where the U.S. has an edge over China.

To encourage mutually beneficial Chinese development, the U.S. should:

Focus on subsidies as the biggest Chinese trade distortion. The Department of the Treasury, the United States Trade Representative, and Department of Commerce should estimate Chinese subsidies for the purposes of reducing them through bilateral and multilateral negotiations; and

As part of these negotiations, should offer to welcome Chinese investment in natural resources in exchange for greater American access to the PRC market.

I agree with all of Scissor's analysis and recommendations, except for this last one.  Not to nitpick, but conditioning Chinese investment in American resource development (e.g., lumber, iron, oil, gas, etc.) on reciprocal access to the Chinese market strikes me as wrongheaded for two basic reasons.  First, such intervention is completely at odds with the paper's strong (and totally correct) free market message.  Indeed, one of the paper's primary conclusions is that the weaknesses in China's economy "have been exacerbated in important ways by renewed Chinese state intervention," yet it recommends American intervention in the US investment market by restricting China's access thereto.

Second, and as I've noted here many times, this kind of reciprocal trade and investment policy  needlessly (albeit implicitly) demonizes foreign investment by casting it as a "concession" that we must begrudgingly give up in order to win access to China's market.  In short, it makes Chinese (and other foreign) investment in the American economy seem like a bad thing, because it depicts China's giving us money (and American jobs and growth) is the price we have to pay to get that sweet, sweet export market.  This, of course, is totally incorrect from an economic perspective, but it's also wrongheaded from a messaging perspective because it teaches the American public to oppose foreign investment.  And I'm quite sure that there are other things that we could use - things we (or our politicians) actually don't want to give up like our agriculture or "green energy" subsidies - as a bargaining chip to gain more access to China's market.

But hey, like I said, that's nitpicking.  The paper's still an excellent effort overall, and well worth your time.

Umm, Yeah, About that Awesome Chinese Industrial Policy

Many misguided souls on both the left and the right (although moreso on the left) look at China's impressive economic growth and openly yearn for the US government to adopt a China-esque industrial policy.  Smart guys like Dan Ikenson and Jonah Goldberg routinely discredit the industrial policy dreamers by pointing out the myriad economic and moral failings of a command economy like China's (or of similar industrial policy experiments here at home).  However, I'm not sure that I've ever seen or read anything that better elucidates the problems of top-down industrial planning than this relatively new video on China's "ghost cities."  It's a little long, but well worth your time:



There are so many fantastic lines and scenes in this piece that I don't even know where to begin. (I especially liked the veiled shot at the New York Times' braintrust for so openly praising China's super-awesome - and now empty and decaying - Mall of the Future.)   Indeed, I think you could write an entire masters thesis on how perfectly this one little video reveals the economic and moral failings of Keynesianism central planning.  For now, however, I'll just posit a simple question: after watching this video, how can anyone - anyone! - seriously advocate copying China's state-run approach to economic policy?