Posts Tagged ‘Shanghai’

Shocking humour: Bridge construction, the Chinese way- just add rubbish inside the bridge

Friday, January 1st, 2010

We often hear of China’s powerful government stimulus spending programs that helped to power the Chinese economy back into stellar growth when the rest of the world (especially the developed Western world) are struggling with the Great Recession.

Most of these stimulus money goes into infrastructure projects like bridge building. For example, as this Chinese article reported, in January last year, a bridge in Shanghai’s Henan Road was renovated. In less than a year, cracks started to appear on the bridge. Next thing, this is what happened:

Rubbish hidden beneath cracks of a bridge in Shanghai

Rubbish hidden beneath cracks of a bridge in Shanghai

So, in order to cut costs (thanks to soaring inflation), parts of the bridge were held together with glue and paste and padded with rubbish!

Elsewhere, in Sichuan province’s Jianyang city, a 40-year bridge was identified as a “danger” bridge after the 2008 Sichuan earthquake. So, it was scheduled to be demolished. Miraculously, despite the brute force of 400 kg of explosives (in 2000 boreholes), that 40-year bridge hardly budged.

Such deterioration in construction quality over 40 years shows the hidden side of inflation.

Photos of Shanghai

Sunday, January 18th, 2009

If you are on Facebook, you may want to join our Facebook community here. It is a great place to interact, communicate, network, discuss and befriend other readers. Recently, we have uploaded several photos of some of our recent visit to Shanghai in that Facebook group.

What do you think of Shanghai?

Global Financial Crisis (GFC) is real in China

Tuesday, January 13th, 2009

In our previous article, Visit to Shanghai- observations, we promised to reveal more about the insights on the Chinese economy from the conversations we have with the locals in Shanghai.

In all the meaningful conversations we had with the locals, we were asked whether Australia is affected by the Global Financial Crisis (GFC). Those people whom we talked to are just normal everyday folks across different walks of life. Chinese President, Hu Jintao, in his new year speech, mentioned about the challenge China faces with the GFC. The local newspaper talked about the Great Depression of the 1930s. Indeed, there are real concerns about the GFC among the Chinese people.

There are anecdotal evidences that the GFC is hitting the real economy in China. We learnt that freshly graduated university graduates in China are having trouble finding jobs. Although the government is encouraging them to start business enterprises, we doubt many can make it through successfully without any experience. One career woman even had to put her ambitious career plans on hold due to the GFC. Another expressed her opinion that this GFC is not one that can be over in just a few years- i.e. it is so serious that it can drag on for much longer than that.

Although the GFC is hitting the Chinese economy hard, we could feel from the streets that economic activity was still much ‘hotter’ than Australia. The reason is because of the sheer size of the population in China. We were told that the number of registered residents of Shanghai is 17 million. We guess if you include the unregistered residents, the population of Shanghai could easily exceed 20 million. Imagine cramming the entire population of Australia into one city! Thus, the colossal size of the population in China means that there will always be colossal amount of economic activity relative to tiny countries like Australia. On the flip, this means that any problems will be colossal as well.

The most interesting conversation we had was with a retiree. The question was, will China succeed in navigating its way out of this economic crisis? That retiree had his own opinion which he reckoned many foreigners have yet to fully appreciate. This insight will require another piece of article. So, keep in tune for the next one!

Visit to Shanghai- observations

Sunday, January 11th, 2009

Over the past couple of weeks, some of us visited Shanghai, China. Shanghai is a vibrant, rich and cosmopolitan city. People, especially the young, generally dress well.

In comparison to Australian roads, the roads over there were chaotic and dangerous. Cars, motor-bikes, scooters, bicycles, trucks, buses and pedestrians crisscrossed haphazardly among each other. Drivers tooted their car horns indiscriminately and continuously. We wondered, if the car horns were so arbitrarily misused and drivers get used to such noises, then wouldn?t its original purpose (warning of danger) be nullified? More alarmingly to us, pedestrians in China have to give way to cars. Danger lurks when you cross the roads even when the pedestrian traffic lights shows green. We encountered a few near misses already. The other few foreigners whom we observed seemed more nonchalant than us on such dangerous living.

As foreigners from Australia, we were not accustomed to the dirty and dusty air in Shanghai. There?s always a haze in the air. A newly cleaned window pane will collect dust within a day. Apartment blocks built a couple of years ago look ?old? and dirty today. A layer of dust seemed to cover every vehicle. We wondered, if you stay in such an environment over an extended period of time, how much dust will accumulate in your lungs?

We tried to seek refuge from the unhealthy and dirty air inside air-conditioned restaurants, cafes, shops, banks and other buildings. But we were totally disappointed. There were almost always smokers (who were usually males) lighting up indoors. We wondered, is it healthier to breathe dusty car-exhaust-filled air or second-hand cigarette smoke? What a tough choice! Maybe we should follow the example of a few cyclists, motor-cyclists and pedestrians wearing surgical masks outdoors. It seemed to us that smoking is the bad habit of the Chinese in the way drinking is for young Australians. Perhaps fighting lung cancer will be good businesses to invest in the decades to come?

On the plus side, the transport infrastructure is very efficient in Shanghai. Taxis are plentiful and cheap (in Australian dollars), buses run frequently and the trains (metro) arrive every few minutes. Shops, restaurants, convenience stores, services and department stores are everywhere. It is very convenient to get anything anytime. Compared to Sydney, Shanghai is bustling with activity. In Australian dollars, food, clothing and transport are cheap. But electronics and branded luxury goods can be more expensive. But relative to their local income, we can imagine Shanghai to be a very expensive city to live in. If housing is unaffordable in Australia, it is more so in Shanghai. But on the other hand, the cost of labour is much cheaper in China.

Compared to Australia, we feel that Shanghai (and perhaps, by extension, the rest of China?s major cities) to be more ?capitalistic.? If you feel that there?s no such thing as a free lunch in Australia, then you can include breakfast, dinner, tea and supper in Shanghai. It is much easier to bleed your savings over there. Businesses are more adept at profiting at your expense. Conversely, for those of you who are business-oriented, this is an opportunity, although it is likely that you will find greater challenge in ethics over there?also, watch out for predators.

Tomorrow, we will talk more the Chinese economy from the interesting insights we learnt from conversations with the locals and the observations we made. Keep in tune!

Cause of inflation: Shanghai bubble case study

Tuesday, December 5th, 2006

A few days ago, we learnt about the mad speculative fervour over real estates in Shanghai. From what we hear, the annual salary of an average middle-class worker in Shanghai is somewhere in the order of 50,000 to 100,000 RMB. However, apartments over there can cost up to prices to the order of 1 million RMB. We were simply astounded at the relativity of these two anecdotal figures, which we obtained from people we know who live in Shanghai. How is it possible for people to afford such exorbitantly priced housing? More amazingly, even at such sky high prices, many people over there feel that apartments are still ?cheap? and consider them good ?bargains!? We learnt further that the prevailing attitude over there was that real estate prices can never fall and that if you do not buy today, you will lose out because they will be more expensive tomorrow. Therefore, people piled themselves with debt to buy real estates that they cannot afford. With their assumption that prices will be going up indefinitely, they reckon that if the worst should ever happen, all they need to do is to liquidate their property at higher prices to the next buyer.This is a gigantic bubble that defies all rudiments of proportion, common sense and prudence. We suspect that with the Olympics in 2008, there will be a need for the authorities to at least keep up the spectacle and illusion of prosperity till then. Meanwhile, as we expected, inflation is experienced everywhere in Shanghai. We heard that this scenario is working out in other Chinese cities as well.

Now, it comes to the topic for today: inflation.

The mainstream economists? definition of inflation is rise in the general level of prices. However, according to the Austrian School of economic thought, the definition of inflation is the increase in the supply of money, in which the effect is the rise in the general level of prices. For the sake of discussion, let us call the mainstream definition as ?price inflation? and the Austrian School?s definition as ?monetary inflation.? We see that the Austrian School?s definition is far more accurate and correct because it goes right down to the root of the problem.

If the economy?s money supply increases relative to the increase in production of goods and services, then prices in nominal terms will have to increase because there will be more money chasing after the same amount of things in demand. As this article, Defining Inflation, said:

Consider the case of a fixed money supply. Whenever people increase their demand for some goods and services, money will be allocated toward other goods. Thus, the prices of some goods will increase?i.e., more money will be spent on them?while the prices of other goods will fall?i.e., less money will be spent on them.

As Ludwig von Mises said in his essay, Inflation: An Unworkable Fiscal Policy:

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.

Therefore, because the approach that mainstream economists take to define inflation is deficient, the benchmark that they use to measure it (an index of the price levels e.g. CPI) is also deficient. Does the CPI (or whatever the alternative price index that central bankers prefer to use) measure the price levels of assets? The answer is no! As a result, the conventional yardstick that mainstream economists use does not fully disclose the full extent of the economy?s inflation problems.

The mainstream economists do not see monetary inflation as an evil?as long as price inflation is not a problem, they do not see the need to care about monetary inflation. But Austrian School economists see that the inevitable consequence of monetary inflation is price inflation because the former is the root cause of the problem and the latter is the effect. That is the reason why Austrian School economists are strong advocates of gold-backed monetary systems because such systems will have automatic built-in checks to prevent undisciplined monetary inflation (aka printing of money).

In the case of Shanghai, we are not the least surprise to see price inflation happening. In fact, if the Chinese central bank does not control monetary inflation (that fuelled the property speculation in the first place), price inflation will get worse before it gets better. When that happens, the common people, especially the poor will suffer. On the other hand, if the Chinese central bank decides to raise interest rates to rein in price inflation, they run the risk of bursting the property bubble, which will have a destabilising deflationary effect. In that case, the speculators (of which many of the middle-class common people are) will suffer first, followed by the rests. It looks to us that the Chinese central bankers may have trapped themselves into a box.