The Problem of China's Local Governments

"I don't mean to be immodest," he says, looking down and smiling. "But I've done rather well for myself."  His face shoots up to lock her eyes in. She averts his gaze, staring past a plush couch arm at the bottle of prime Australian pinot grigio, which sits in an elaborate cooler braced by the flexing arm of a 3/4 scale Michelangelo's David.  He's added 7 Up to the wine.  She hates Western wine doctored with 7 Up. If she could afford good wine, she'd drink it straight.  

He sits down and abruptly throws an arm around her.  She shyly turns toward him.  Their heads hover close like asteroids dancing, about to collide. 

"I'm your assistant." She says.

"Yes,you are my assistant."

"You're very direct." 

"Yijia, when I am dealing with peasants, workers, taxpayers, auditors, every word I utter must be a lie.  But after hours, when the sun is setting and my only remaining staff are my most loyal, I try to adhere to a strict policy of complete candor and honesty.  Let me pour you more wine."  She and the couch arm are in the way. He reaches further, almost climbing behind her.  Laughing, she playfully bats at his arm and chest with the back of her hand.  He returns, bottle in hand, and fills two jade cups on the glass table before them with uncommonly fizzy wine.  

He is just so...attractive, so in his element.  Who cares about the wine? No more games, she decides.  Asteroids collide. When the long kiss is broken, she looks back down at her glass.  "I like these jade cups."

"Anything Ms. Zhen desires, she can have." Her smile broadens.  She has some jade, but nothing that approaches the whitish-green translucency of Mayor Du's two cups, with the reliefs of the Eight Immortals made sharp by the setting sun.

Mayor Du isn't looking at the cups.  He is looking out the massive bay windows onto the vast plateau of yellow Shaanxi earth beyond, his gaze undeterred by a dying red sun.  He can see the brick factory(which the locals call the Demon Fortress) on the hill in the distance, its kilns still billowing with smoke.  The incomplete bridge that will span the gorge in a year's time. The apartment towers and the office complex rising like mushrooms.  And the lot - recently set aside and paid for by Beijing - meant for solar cells or wind turbines.  Three photovoltaic panels sit covered in fine yellow dust, overshadowed by a new kazoo factory.  

Not exactly in line with the latest rules.  But the next inspection is six months from now.  

Today I remembered an old Chinese saying: 天高皇帝远 / heaven is high, and the emperor is far away.   Truth be told, I could only remember and the emperor is far away.  I looked up the latter half of the saying on Google, and found this old Time Magazine article from 2002, of which I will provide a snippet:

After more than two decades of economic reform, China's centralized system has given way to clusters of fiefdoms operating outside Beijing's shrinking sphere of influence. Absolute power, once exemplified by the personality cult of the Great Helmsman [Mao Zedong], has devolved to regional party bosses who now hold sway over citizens' everyday lives.

Why bring up such an old article?  Everyone who knows anything about blogging (among whose ranks I cannot count myself) will tell you ya hafta stay current!  It's either five minutes old or it's irrelevant.  Irrrrrrelevant!  But the danger of a world where things change so quickly is the tendency for its inhabitants to assume that everything changes quickly.  Some things simply don't.  Failure to adapt to a thing's inability to change is as bad as not adapting to change.  Think about how much more awesome the internet would be if a lot of people didn't still use Internet Explorer 6.  

Anyway, just yesterday I referenced an article conveying fears of a Chinese debt crisis.  The central government in Beijing has managed its finances well, and has invested heavily in massive infrastructure projects.  But most of the Middle Country's warp-speed real estate development has been financed by local governments at the town, city and provincial levels.  There is enormous pressure to increase revenue within local governments, but as far as I know, revenue in the form of sales, business and value-added taxes mostly goes to the central government (more on revenue sharing here).    Point is, local power brokers afford big real-estate projects through foreign direct investment and heavy borrowing.  Local governments own all of the land, but are free to sell it to anyone at artificially low prices.*  People are routinely kicked off of plots they've inhabited for generations to make way for new factories, fancy sub-divisions and offices.  

And so, they must borrow enormously to afford the real estate development needed to increase their riches, prestige, and favor with the central government.  Meanwhile, foreign investors in real estate and industry all expect increasingly enormous returns.  And with the amount of corner-cutting that goes on in the local Chinese construction industry, the possible worthlessness of some over-priced buildings could become evident if ever an economic slow-down prompted closer scrutiny of what could be a real estate bubble. 

I haven't been to China since 2006.  I desperately want to go again soon.  Until then, I observe from far away.  But I am no longer in college, and so I have little privileged access to "up-to-date" scholarly literature.  All of the "out-of-date" scholarly literature I have within reach more or less consistently says that the unmitigated power of local party bosses is a serious problem, and defines the gulf between Beijing's  well-meaning solutions to economic or environmental issues on the one hand, and the reality of their implementation on the other.  And I see little evidence in the recent stories about a possible Chinese debt crisis that the situation has changed.

I'm not an economist, but I can only imagine that any economist or professional China Watcher aware of this issue would be pre-disposed to worry about the finances of local governments.

*Shen, Jianfa. Space, Scale and the State: Reorganizing Urban Space in China pp 39-58. In,

 Restructuring the Chinese City Changing Society, Economy and Space. (Ma and Wu eds).

 Routledge, London, 2005.

China in Debt?

Here's a CNN/Fortune/Money article on fears over Chinese debt, by Katie Benner. 

I think it's interesting how the  article discusses the debt run up by China's LOCAL governments at the city and provincial level. Our collective imagination views china as a monolithic behemoth whose autocratic central government is in complete control. But nothing could be further from the case. Beijing can set the rules for who joins the party to become an official, and when. But it can't control what local officials do once they're in charge of their little territories. Indeed, local governments routinely ignore, for example, environmental and building safety directives handed down by the central government. Why should anyone, therefore, expect Beijing to be able to monitor and maintain their books?

For the last time, China is not defined by central state power and control.  It is better defined by surprisingly weak central state power over most things other than the abridgment of human rights.  

...


It's all about the real-estate.  It's all about the buildings, so numerous in type, so often ridiculous in scale and design.  If the toilet paper industry were to somehow collapse, or should a particular brand of toilet paper do so poorly that investors scramble to pull their money out of the failed venture, you won't see uninhabited, multistory stacks of toilet paper lining the streets and roads as far as the eye can see.  No painful reminders you can walk into, no dusty outlines of furniture lining the inside of the toilet paper roll.  Boxes of unused toilet paper can be buried unseen in a landfill.  A house or an office building cannot.  

Buildings provide liquidity to their owners, so that in a good market with rising prices, the owner can put up a building as collateral for any borrowing they might need to do.  But buildings are also things you walk into, places you call home.  We sleep, wake up, buy and eat sandwiches, have sex or read to children inside buildings.  And when you build a building, you usually have to chop down some trees or demolish another building to do it.

China, in the past thirty years, has chopped down a lot of trees, and destroyed a lot of old buildings, to build new buildings -- specifically high rise apartment blocks and A-prime office space.  I was listening to Bloomberg Radio the other day, and Nick Lardy, professional China watcher extraordinaire, discussed with the host the possibility of a housing bubble and a broader "re-adjustment" (i.e. fucking catastrophe) he sees on the horizon.  One point he made that particularly struck me was the undeniable truth that if one were to visit a large Chinese city and see a new building under construction, and were to leave and then return five years later, there would be a good chance that the building would have already been completed, torn down and replaced in the intervening years.


This constant churning of earth, stone and metal means that the historical landscape of China - its old villages, hutongs, bell-towers, tea-houses and temples - are rapidly disappearing.  Chengdu, a city I've always wanted to visit, has painted blue whole neighborhoods that the city government intends to demolish and replace.  And the link provided is already two years old...


I guess New York City is sort of the same.  New York has some great landmarks, like Grand Central Station, or the Statue of Liberty, or the Empire State and Chrysler buildings.  But nothing is kept that serves no function, and even then it isn't kept as long as, say, some of the old colonial-era homes in Boston.   People come to New York City for the music, the art, and the culture, and the fact that no matter what they build, it still feels like New York.


Its only worth completely destroying and remaking your urban landscape as long as the economy improves, access to goods and services multiply, and people desire moving into the new buildings.  But if there is a slump, and the real-estate market in China is revealed to be a hollow and deflating bubble, than I could imagine the geo-cultural destruction becoming doubly insulting.  


There's nothing more depressing than an empty, modern-looking building.  

Callousness

(Photo by Noroton, taken from Wikipedia @: http://en.wikipedia.org/wiki/File:StamfordCTUBSNorthAmericanHQ11112007.jpg)

UBS, the massive Swiss bank, might be pulling out of Stamford, Connecticut.  It moved there in 1997, building the largest trading floor in the world - roughly the size of two football fields - and quickly became the town's biggest employer.  UBS is now considering moving back to Manhattan, specifically to the re-vamped World Trade Center.  To those who have been following the story, this is old news. The New York Times began following the deal around June 9th. UBS says it is contemplating the move because of some of its employees' frustration with the reverse commute, though retribution for Gov. Dannel P. Malloy's increases in business taxes, needed for balancing the budget, is a possibility. Here are a few telling quotes from the articles discussing the move and it's ramifications. 

The move would be the latest sign that New York has regained its allure as a caldron for the young and creative.  Six months ago, Google paid nearly $2 billion for a large building just north of the meatpacking district, in the same Manhattan neighborhood where many of its employees live.(http://www.nytimes.com/2011/06/09/nyregion/ubs-may-move-back-to-manhattan-from-stamford.html)

And, in reference to the question of what Stamford is to do with what will be a massive vacant building:

Recreate the shoulder-rubbing cultural ferment of late-’90s Williamsburg by subdividing the space into 171 600-square-foot apartments, each with a minimum occupancy of seven persons with liberal arts degrees? Create a locavore destination consisting of gigantic greenhouse and attached food court? World-class skateboard ramp course and museum?  

(http://cityroom.blogs.nytimes.com/2011/06/08/what-would-you-do-with-stamfords-ubs-space/)

Create, in essence, a billable "experience," as has occurred already in Williamsburg, or other parts of Brooklyn?  The author already knows exactly what kind of people should move into these hypothetical new lofts before they've even been built?

...

Most people think of places like Stamford as boring, and it is.  But to me it stands out, for a number of reasons.

First off, when I think of all of those highway-side mini down-towns that orbit NYC like moons, like White Plains, New Rochelle, Rye/Port Chester - what journalist Joel Garreau calls "Edge Cities" - Stamford, CT stands out as the nicest. It's not as rich as Greenwich Ct, for example, but I still think it's nicer (the Greenwich Police, who guard that town's endless rows of absurdly- priced boutiques, are practically as mean and omnipresent as the Gestapo.)  Indeed, only the very rich think of non-rich as "well, not very nice." The down-town is bisected, east and west, by the tracks of Metro North's New Haven Line. The western portion is gentrified, with new restaurants and businesses opening all the time, despite the recession. On the eastern half sits Stamford's working class and immigrant community. This bit of geographical segregation is indeed unjust, but both sides thrive as working communities. Both are more than worthy of being called "home" by the people who live there.  

Stamford also has a special meaning for me.  I live across the Connecticut/ New York border, in Pound Ridge.  Pound Ridge is rural and isolated, and for those of us who live near the town line, Stamford is the nearest urban and sub-urban location.  Since moving to the area in '95, when I was eight, Stamford has been the destination whenever there arises a need only the suburban strip can fulfill.  The bigger hardware store, the 24/7 supermarket, multiple ice-cream and doughnut venues -  a playground of the munchies-beset.  

More importantly, Stamford is where one of my best friends, Ben Hoffman, lived.  He, my other great friend Alex and I together formed an inseparable trio, but it was mostly Ben and I alone who explored Stamford together.  We'd discuss philosophy (of which I knew some and he a lot) history, Star Wars spaceships, non-Star Wars spaceships, anything that set our imaginations to work while we walked to Sharif's turkish coffee place, or over to the pizza joint, across from which sits Connecticut Music, where I got all of my guitar stuff.  Run by three or four brothers, it's the best.  

And so Ben and I would walk around, being giant nerds. He could get his mind off of the divorce situation at home, and for my part I could experience the magical feeling of walking from one place to another on a sidewalk, without a ride from Mom.

Two old comic book stores.  One was called A Timeless Journey.  I bought most of my Magic cards there. The other's name I totally forgot.  I just remember it being run by a solitary old man, and that upon its dusty shelves lay rare goodies not to be found elsewhere.  A massive, newspaper print-sized collection of old Uncle Scrooge comics, or a stack of fantasy and sci-fi themed mouse pads (I'm sure you could get those elsewhere, but who has a stack of them lying around?)  That place shut down about a year after I moved in. Timeless Journey closed in the middle of last decade, to be replaced with a fancy nail spa.

Seems like a lot of small stores got replaced with fancy nail spas. Ever since companies like UBS moved into Stamford (Royal Bank of Scotland as well; also other big companies like Thomson Reuters and Tasty Bite), the city experienced the old predictable tale of gentrification.  Trendy restaurants began to appear, while Curley's Diner heroically refused to leave, despite eminent domain attacks from the city. Many of Stamford's new small businesses that have appeared in the last decade are because of the disposable income of UBS employees. 

Maybe I just don't get it. Perhaps the too naive, not up to speed on how the invisible hand of capitalism works. I just think it's wrong to see a town grow and change before my very eyes, only to suddenly face imminent disaster, all because of the actions of one company. It disgusts me that UBS went out of there way to build a piece of real estate so massive in scale and cost, and then to find only fourteen years later that they might be better off selling the place for more expensive real-estate in Manhattan. Just like that, all of those banking and service jobs will be lost to Stamford forever. It is callous, and it shows how dangerous massive too-big-to-fail banks are. They're not just dangerous when they're on the brink of collapse, they're dangerous when they're in their element, doing just fine!  They make fickle, casual decisions that destroy lives. They move at a pace that lets their latest victim grow and die in a little more than ten years. Detroit, Cleveland, and other towns in the mid-west had hay-days that lasted decades before they fell to rust. The bigness of these institutions ensures that in moving, ants like us will get squished. 

America, we have too many company towns, where one large business is the sole employer, if not the largest by leaps and bounds. Such an arrangement breeds so much dependence on the company that the townspeople are forced to love them, in spite of all that happens.  They are forced to buy into the idea of the big corporation, to bask in its light, to willingly surrender before its awesome visage. The fake feeling of reassurance that the company brochure is designed to invoke becomes the mood of the entire city. They must create the fantasy that it only gets better and better when control is given to the captains of industry, finance and consumerism.  

And no one dare pay any mind to what might happen if they leave - or, more importantly, for what reason might they do so, and is that reason beyond the agency of the town's government or people to mitigate.  

The story of the outsourced ghost town has been old news since the 1980s. Within the vast ocean that is teh interwebz dwell countless polemics like the one you've just read. But this time, the company town isn't in West Virginia, or rural Ohio. This time it's near the center of things, in the shadow of New York City. And it will be blue-collar service workers and middle class office types slated for the grueling process heretofore reserved for the miner or auto-parts assemblyman.  

Now it's close to home. Now it's fifteen minutes away.  

    

(The reader should remember that UBS has not yet left Stamford, and still might not.)