China Power

China on Heroin?

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China Power

China on Heroin?

Is China’s economic boom built to last? Its residential buildings certainly aren’t.

Last year saw the troubling spectacle in Shanghai of an apartment block collapsing. There was no earthquake, no fire, no explosion involved—it just fell over.

Although dubious construction projects are not uncommon in much of China (as was highlighted to disturbing effect by more than 5000 schoolchildren who perished in the 2008 Sichuan earthquake because of the woeful standards and short cuts in school buildings that led many to collapse) the fact that it happened in a key city like Shanghai was shocking to many. The city is, after all, often viewed as the face of modern China, with its space age waterfront and massive redevelopment project for this year’s Expo.

But last year’s apartment collapse is just the tip of the poor construction iceberg, suggests the official Xinhua News Agency, which notes that the average life span for many buildings is only about 25 to 30 years—about half of what is intended.

The article goes on to note:

‘The per unit energy consumption of China’s short-lived residential buildings is two or three times that of residential buildings in developed nations, according to industry sources.

‘The short lives of Chinese buildings are also causing huge waste, as the construction of a 10,000 square meter building will create 500 to 600 tonnes of waste, while the demolition of an old one with the same acreage will create 7,000 to 12,000 tonnes of waste, said the report.’

Corruption at the nexus of construction companies and local officials is often blamed, with the emphasis apparently on speed and targets rather than safety. An interesting question is how the current breakneck pace of Chinese urbanization will continue to affect standards, and what happens if the crash many are predicting for the property market materializes.

These fears are real and widely shared, and were given voice this week by hedge fund manager James Chanos, who argues China is on a ‘treadmill to hell’.

Chanos, who says that as much as 60 percent of the country’s GDP depends on property investment, goes on to say: ‘They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.’

Real estate prices accelerated in February, climbing at their fastest pace in about two years, despite the government having introduced measures to rein in prices, such as its decision to reinstate a tax for sales for sales within five years of purchase.

The government’s worry with the spiralling house prices is potential social unrest, with poorer workers unable to afford to purchase property in the country’s booming cities; without adequate affordable housing the migration of workers from the countryside to the cities won’t be possible.

Another government initiative aimed at slowing prices increases is a massive investment in subsidized low-cost housing, which brings me back to where I started writing. Officials would be taking a promising step if it were to try and ensure that with this subsidized housing at least, low cost doesn’t equal low quality.