Industrialization happens when goods are mass produced rather than individually crafted; services are systematically rendered rather than as an expression of intended care. Goods are mass produced to meet demand, space design made and implemented by an affordable labor force supported by accessible financing. China's centralized economic planning has been doing these, achieving the rapid industrialization that took decades to happen in other nations.
Housing bubbles burst when over construction occurs, and the financing of new ones to sustain growth follows a Ponzi-like type that eventually collapses in time. I wondered how China's unoccupied housing and undersubscribed commercial space have avoided collapsing the economy, depressing market prices and tightening credit.
I glimpsed why the bubble will not burst when I learned that my 4-year-old student's family bought apartments as investment eight years ago. They are still holding on to them though the units had not been occupied, nor showed any prospect of being sold. They invested in the furnishings as well, all bought from savings and short-term loans rather than long-term mortgage.
The bubble will not burst because government-secured financing maintains illusory equilibrium between supply and demand, and holds strong currency advantage over those of other countries, particularly against the dollar. The economy stays attractive to outside investors. Negative adjustment on monetary value, when it occurs, is passed on to domestic consumers.
In other words, the stock exchange in Shanghai does not find itself short of investors. In fact the country plans to open a second bourse in Shenzhen.
China's adopted a short view of the business cycle. A Belgian BMW head had difficulty meeting his mandate to build a car manufacturing plant in Shenyang to last for a century. Unless one is building another Great Wall, the built-in obsolescence in China is short.
My building at the university is new. It looks impressive from the outside, but the winterizing of its windows is a sham. The double-pane glasses are far apart because they were installed separately, with the second as an afterthought. Finesse did not come with workmanship.
Last month, I watched workers construct a four-story building next to my residence and I followed their progress from the 11th floor of my building. I saw an integration design that is modular rather than structural, e.g., drains and electrical lines are external to the basic skeleton of the building installed outside its walls.
The flush of my toilet is heard in numerous floors, as the pipes are not embedded into the wall to carry the cascading waters. In my last apartment on Saipan, there was no exhaust ventilation in the bathroom, a design lapse that assumes function can be added to the form after construction. Yup, Chinese construction.
Why is this of any importance? This is not a critique on poor construction design and implementation. Rather, it is to highlight the contrast between the classical model of producing things to last, and the model to build on programmed obsolescence. It is stark but universal in the industrial process.
Buildings in China get dated very quickly, notwithstanding the Forbidden City and the Great Wall. The design department in our university, built half a century ago in the European style, is coming down; it has become dysfunctional, and there is no attempt to preserve the aura of its era.
Built-in obsolescence in a market economy results in periods of boom and bust, and in that sense, those who can manipulate the market are at an advantage. The current scandal on how LIBOR rate has been manipulated by financial institutions is a case in point.
This may all sound theoretical but as has been shown by the unoccupied buildings in Saipan, and the U.S. housing bubble that burst in 2008, we now know that the “Field of Dreams” concept-build it and they will come-only makes good plot in the movies. In real life, one goes with real market trends and how stakeholders in any enterprise participate in establishing value. Recessions and depressions occur when a system grows ill and aims to right itself. Manipulating the market is not our beef; the fact that the current system allows only a privileged few to be privy to the task is.
Around the globe, we have allowed the captains of industries ride a financial system protected by a perpetual war promoting complex, to primarily determine how foods are packaged, clothing manufactured, buildings constructed, and alas, how minds and imagination are taught to convert what we are conditioned to want into what we need.
China's construction bubble has not burst because its middle class bought into per square meter space rather than squirrel safe gem bubbles and glittering silver and gold. The government is now just catching up to regulating housing construction so that it is tailored to the masses' purse rather than be a pyramidal investment scheme for the well-off and well-connected market manipulators.
How well the central government folks can contain a gargantuan task from bursting on its face is the challenge of the hour to the Panda that is unraveling on the seams.
Jaime R. Vergara (firstname.lastname@example.org) is a former PSS teacher and is currently writing from the campus of Shenyang Aerospace University in China.