Keep Digging

In a recent FT column, GMO’s Edward Chancellor claims, “It is too early to judge the legacy of China’s 2009 stimulus. There are, however, indications that capital has been stupendously misallocated.”  Ed goes on to demonstrate that, “The 2009 stimulus has spawned numerous other questionable investments, fuelled official corruption across the country, and has left behind a mountain of dubious debts. The world’s longest bridge recently opened in Shangdong province. The largest indoor ski venue is under construction at Tianjin. The second- and third-tallest skyscrapers are rising in Shanghai and Wuhan. Domestic shipbuilders have lately built iron-ore carriers so large that they are unable to dock in Chinese ports. The country appears to be suffering from a case of investment gigantism.”

Fully recognizing that I have been rather slow to continue our own China series, I couldn’t help but get side-tracked by these examples of “investment gigantism,” so let’s take a quick peak at each in turn.  According to Guinness World Records, the Jiaozhou Bay Bridge is over 26 miles long making it the world’s longest bridge over water.  The bridge took four years to build and employed over 10,000 people, while consuming 450,000 tons of steel and 2.3 million cubic meters concrete.  Apparently, this was not enough to prevent safety concerns as Chinese media reported that the bridge was opened with “faulty elements,” such as incomplete crash-barriers, missing lighting and loose nuts on guard-rails.  Needless to say, Shao Xinpeng, the bridge’s chief engineer, claimed that in spite of the safety report the bridge was safe and ready for traffic, adding that the problems highlighted in the reports were not major.  Of course they weren’t.  Click on the picture below for a video of this monstrosity.

Not to be outdone by a 26 mile, six-lane bridge to nowhere, Shining Star Investment Company hired Phil Mickelson to put his name on an 18-hole golf course, appropriately titled, The World.  Mickelson has called The World, the most impressive project he’s ever seen.  We don’t doubt it.  According to the World Golf Report, “The World (in Chinese, Xingyao Wuzhou) is a unique, futuristic “floating city” that spreads over more than 11,000 acres. It’s mostly water, with island-like land areas that are meant to resemble the earth’s continents.  The World could eventually become home to 70,000 or more people, and it seems destined to become a global tourist attraction. It’ll have all the essentials – houses, hotels, shopping areas, eateries, a conference center -– as well as the world’s largest indoor ski area, the world’s largest indoor water park, and replicas of landmarks such as the Eiffel Tower.”  Indeed.  All the essentials.

While we didn’t do any indoor skiing or water-sliding while traveling through China, we did spend a few days in Shanghai at a hotel directly across the street from the Shanghai Tower, which was still under development at the time.  In fact, we were amazed to see construction workers and sparks flying around the building at all hours of the night, during our stay in the city.  But I suppose there are only so many hours in a day to complete 6, 704 buildings of 11 stories or more since 1990.

Upon completion, the Shanghai Tower was anticipated to be the tallest building in China, with over 120 stories, standing over 2000 feet high.  However, it was recently reported that another Chinese skyscraper, the Wuhan Greenland Financial Center, might be redesigned to reach nearly 2100 feet, exceeding the height of the Shanghai Tower.  How dare they!  In any event, it seems some of these workers may need a break as large cracks have already begun appearing in the ground near the tower’s construction site. I’m quite sure that the problems were not major.

A recent article in Reuters provides some insight into the “economics” behind China’s shipyards.  Apparently, lending to the shipping industry has increased more than 500% to nearly $4 billion.  As Ed notes, “The political pressure is acute in China since borrowing to invest in infrastructure helps local governments meet Beijing’s GDP growth target . . . The country’s huge investment has propelled growth since the Lehman bust. Yet this binge has also dug China’s economy into an even deeper hole. Beijing’s new plan? Keep on digging!”