In assessing China’s numbers, Westerners see nobody’s point of view but their own. Peston expressed particular shock at the pace of China’s infrastructural development. What he failed to register is that with a savings rate close to 40 percent of GDP, China can well afford such a program. The numbers may seem large in isolation but on a per-capita basis China’s pace of development of expressways and fast-rail track, for instance, is broadly in line with Japanese programs when Japan was at a similar level of development in the 1960s.
Peston mentioned also that 30 airports had been built in the last five years. Yet, on a per-capita basis, this is the equivalent of an underwhelming one new airport every three years in the U.K.! His shock seemed particularly piquant given that China has one of the lowest ratios of airports per-capita in the world. On the CIA Factbook’s numbers, it had a total of just 507 at last count. By comparison, the U.K., with less than 5 percent of China’s population, had 460! Meanwhile America had 13,513. By the same token, Peston seemed astonished that China was building a new skyscraper every five days. Again translated into British terms this seems underwhelming — the equivalent of a little more than three new skyscrapers a year.
Peston focused particularly on a reported rise in China’s total credit from $10 trillion in 2008 to $24-25 trillion recently. This represented growth that at maximum was 150 percent, a figure that would certainly ring alarm bells in the United States. But China is not the United States, and judging China’s credit numbers from an American (or British) point of view is a fundamental mistake. A key point is that if a nation’s output is expanding rapidly (and we know China’s is because we see all the Made-in-China goods flooding into Western markets), it will experience faster credit growth than a nation whose output is expanding slowly. The fact is that on the CIA Factbook’s numbers, China’s total output at prevailing exchange rates grew from $2.88 trillion to $8.11 trillion in the latest five years – growth of 182 percent. Seen in this light, China’s credit growth actually looks relatively reasonable: certainly, far from getting ahead of the economy, credit growth has actually lagged. Of course, it can be suggested that China’s bank credit total is high in absolute terms — but that is a different argument and should begin with a consideration of whether the Chinese numbers are stated on a Western accounting basis. The evidence is that they are greatly overstated. (Accurately measuring bank credit is highly elusive because of double and triple counting — one financial institution’s assets are often another institution’s liabilities. Adjustments have to be be made for the extent to which banking transactions between related entities distort the picture.)
By the same token, in suggesting that the banking industry was threatened by the proliferation of so-called “ghost estates” – luxury apartment developments that are largely empty – Peston again blindsided himself. Implicit in his comments was an assumption that purchases of such apartments are financed on credit. This might make sense in the United States or United Kingdom but again China is different. As Bill Powell of Time has pointed out, these purchases are in reality financed not by the banks but largely with cash, and thus the banking system’s exposure is minimal. Many of the buyers moreover are small-time entrepreneurs who built their wealth by cheating on their taxes. To say the least, if their investments were to go bad, few in the Chinese establishment would shed a tear. Still less would their plight create uncontrollable political angst. The conclusion is that China’s Big Four banks – the Bank of China, China Construction Bank, ICBC, and Agricultural Bank of China – probably have some life in them yet.
From the point of view of the Chinese system as a whole, such ghost estates are actually part of the solution. This is because they are typically built on publicly owned land, and the huge profits garnered by city, provincial, and national agencies are ploughed into road-building and other socially beneficial infrastructural projects.