Infrastructure is collapsing, unfinished buildings are everywhere, companies are owing wages, and China's economic growth is less than 3%. Analysis of the real situation

In a recent official program of Japan's Bungeishunju Plus , host Takahashi Ikuya interviewed Tokyo Foundation Chairman Researcher Colon (Note 1) and writer Yasuda Minetoshi (Note 2) to discuss the complex current situation of the Chinese economy and deeply analyze its dark side. The host started by raising the serious social problems currently facing China, especially labor-capital issues and collective protests by workers, and led the two guests to discuss in depth their views and thoughts on the current situation of the Chinese economy. The topics covered serious wage arrears of enterprises, collective strikes by workers, real estate bubbles, collapse of face projects and deterioration of the trade environment. The following is a compilation of the key points.

Economic growth slows, wealth gap widens

Although the Chinese government set a 5% economic growth target at the beginning of 2023, in reality, according to Colon's observation, the target may be difficult to achieve. He mentioned that although the government claimed that the economy was growing steadily, according to the data, the government's revenue growth was only 1.4%, far below the expected 5%. In addition, the performance of the transportation industry also failed to support overall economic growth, with domestic railway freight growth of only 2.8%.

The two guests agreed that China has encountered dual challenges both internally and externally, and the lasting impact of the epidemic, insufficient domestic demand, and a deteriorating trade environment have put the Chinese economy into a state of stagnation. Yasuda further pointed out that this situation has a particularly profound impact on low-income groups such as university graduates and workers, and more and more people have fallen into poverty due to shrinking incomes.

Wage arrears in small and medium-sized enterprises have become a common practice

China's wage problem has become the current focus, especially in small and medium-sized enterprises, where the problem of non-payment of wages has occurred repeatedly, leading to collective demonstrations by workers. Some workers have even resorted to crime. According to Colon's analysis, the underlying reasons behind this phenomenon are closely related to China's economic structure, social stagnation after the epidemic, and Sino-US trade frictions.

According to the observations of the two guests, China's wage situation has not improved, and wage arrears have become a common problem in many industries. In particular, even the wages of public institutions such as the military are deducted by the government. These problems have caused widespread dissatisfaction and a crisis of trust in society. Yasuda pointed out that not only small businesses, but even large state-owned enterprises are facing similar situations. Both experts said that it is ironic that China is a communist country, and the protection of workers is even lower than that of pure capitalist countries. Withholding wages has become the norm, causing the grassroots workers to collectively rebel.

The unions are controlled by the Communist Party

Talking about China's trade unions, Yasuda and Colon pointed out that although China has trade unions, most of these unions are controlled by the Communist Party and do not truly represent the interests of workers. In fact, these unions have become tools to safeguard the interests of the government and enterprises, rather than an institution that can fight for the rights of workers. This makes workers lack effective channels and support when facing wage issues.

This phenomenon is particularly evident in China's manufacturing industry, especially in large and foreign-funded enterprises, where workers' wages are often delayed or deducted. These problems have aroused dissatisfaction in local society and have had a long-term impact on social stability.

Real estate bubble

China's economic growth has slowed down, and the real estate industry has also encountered unprecedented difficulties. Colon mentioned that due to the housing bubble, many construction projects were forced to stop or delay, resulting in a large number of workers' wages being in arrears. Many construction companies were unable to pay subcontractors on time, and even delayed for months, which made many subcontractors face cash flow difficulties and affected the wages of employees.

In addition, China's high-speed rail and infrastructure construction issues have also attracted attention. Although China has the longest high-speed railway in the world, due to over-construction, future maintenance will face huge challenges. Yasuda mentioned that many newly built infrastructure may have safety hazards in the future due to lack of funds and maintenance, which is a major threat to China's economic growth and international image.

The hidden worries of China's infrastructure: bright and beautiful on the surface, but hidden dangers behind

Behind China's large-scale infrastructure construction, the apparent prosperity often hides problems that are difficult to ignore. Colon and Yasuda Minetoshi mentioned in the discussion that although China's infrastructure has made remarkable achievements, these rapidly advancing projects often face hidden dangers due to quality problems and design defects.

The face-saving project collapsed

Colon mentioned that during his recent visit to Laos, he saw a high-speed railway built with Chinese aid, which extends from China to Laos and has been in operation for four years. However, although the high-speed railway looked bright and beautiful at first, its condition four years later is worrying. Colon said that the trains are already quite old and the stations are dirty, indicating that the maintenance problems of the project have gradually been exposed. This situation is not an isolated case, and he is worried that Chinese infrastructure around the world will face the same fate.

Yasuda added that this phenomenon reflects the "face project" of China's infrastructure. When many infrastructure projects were first started, a specific completion date was determined, without considering the details during the construction process and the subsequent maintenance. Yasuda pointed out that these projects are often rushed to complete in order to catch up with important policy addresses or major festivals. Although this way of advancement can achieve face success in the short term, it may hide huge risks in the long run. For many major project developments, the start and completion dates often have to meet the inspections of important leaders or the media to demonstrate China's construction capabilities, but the quality of construction and subsequent maintenance are often ignored.

This is common in China's high-speed railways, bridges and large buildings. Yasuda cited the example of Japan's World Expo, where the media would report in advance that Osaka might not be completed on time, but in China, such situations are often concealed and covered up until the construction is completed. Yasuda described these constructions as looking beautiful and magnificent at the beginning of completion, but as time goes by, the infrastructure begins to reveal obvious problems, just like the Laos high-speed rail.

Ghost scenes appear in Chinese towns

Colon talked about the main problem of China's local officials in promoting infrastructure: overbuilding. In order to improve the image of local officials, these development projects are often carried out without fully considering the actual needs. They will plan large-scale projects in areas that are not suitable for construction, which eventually turn into ghost towns. Large residential areas and commercial centers built in these places become empty towns and unfinished buildings due to lack of real demand, becoming a symbol of China's infrastructure waste.

When local governments build new cities, they rely too much on financial support from the central government, ignoring the long-term planning and actual needs of urban development. In a place that Yasuda once visited, the local government decided to build a new city in a remote lake area, claiming that it would be a smart city and even planned to introduce advanced technologies such as self-driving cars. However, when he visited in person, he found that the construction plan had almost stopped, the urban infrastructure had even been abandoned, and vacant apartment buildings were scattered throughout the city.

The root cause is short-sightedness

The two experts agreed that China's infrastructure projects are often driven by short-term political interests and lack consideration for long-term social needs. In such cases, local officials usually pay more attention to showing results and ignore actual feasibility and maintenance issues. This not only exacerbates the problem of infrastructure quality, but also makes many infrastructure projects in China look glamorous in the short term, but may become a heavy burden on society and the economy in the long run.

Note 1

Colon (Senior Researcher at Tokyo Foundation)

Born in Nanjing, China. Graduated from Nanjing Jinling University of Technology in 1986. Went to Japan in 1988 and graduated from the Faculty of Law and Economics of Aichi University in 1992. Obtained a master's degree in economics from Nagoya University in 1994. Worked at the Long-Term Credit Bank Research Institute and Fujitsu Economic Research Institute, and joined the Tokyo Foundation Policy Research Institute in 2018. At the same time, he is also a professor at the Global Regional Center of Shizuoka Prefectural University. His recent book is "China's Real Estate Bubble" (Bunshun Shinsho).

Note 2

Minetoshi Yasuda (writer)

Born in 1982. Graduated from the Graduate School of Literature, Hiroshima University. His work is "Will the June 4th Incident of 1989 happen again?" His recent works include "Understanding the nation means understanding China: The nature of a great power's transition to empire" (Nakako Shinshosha).

On July 24, EST, US President Trump and Federal Reserve Chairman Powell inspected the construction site of the Fed headquarters. The two interacted in a relaxed but somewhat tense manner, from project overruns and project details to interest rate policy. Trump said that he would not fire Powell because of the construction site budget issue, and the focus would still be on the interest rate cut that he cares about most.

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Trump personally inspected the Fed construction site and rarely appeared on the same stage with Powell

Trump made a rare visit to the construction site of the Fed headquarters on July 24, Eastern Time, becoming the first U.S. president to visit in nearly two decades. He also inspected the site with Fed Chairman Powell wearing hard hats. He mentioned on the spot that the renovation budget was "too expensive," causing Powell to shake his head in response.

Trump even pulled out a piece of paper saying that the construction budget had soared to $3.1 billion, and Powell immediately retorted, "That's the third building, and that one was built five years ago." The two directly argued with each other in front of the media. Then the media asked how Trump would deal with the overspending of his own construction projects, and he bluntly said that he would fire people, but then turned to Powell and said:

"I'm not targeting you, I just want to see the project completed."

From construction site overruns to interest rate policy, Trump calls on Powell to "do the right thing"

The original budget for the renovation of the Fed headquarters was $1.9 billion, but the budget was raised to $2.5 billion to meet safety requirements and install explosion-proof windows. Republicans criticized the project for being wasteful. However, the Fed responded that 700 to 800 workers were working in two shifts every day, and an internal audit was currently underway, and that the outside reports were inaccurate.

Although the interaction was relaxed, it was also a bit tense. Trump still brought the focus back to the interest rate cut, which he cared about the most, and emphasized to the media:

"I just want to cut interest rates, it's that simple."

He declined to disclose what was discussed privately, only saying that Powell's term was about to end, so he would do the right thing, and everyone knew what was the right thing.

Powell will not be fired for overspending, Trump returns to the White House and urges interest rate cuts again

Although Trump recited a lot of it on the spot and also mocked the project as "quite luxurious", he finally said half-jokingly: "There will be a lot to say in retrospect. I don't want to be a hindsight expert. I just hope that this project can be completed quickly." He also added that he had handled bigger projects in New York in the past and the overspending was not so big, but this incident was not enough to make him fire Powell.

After returning to the White House, Trump also posted on Truth Social, emphasizing:

"It would be better if you didn't start it in the first place, but now that you've done it, finish it quickly."

Finally, the Fed reiterated its intention to cut interest rates. The outside world expects the Fed to keep interest rates unchanged next week, but may cut interest rates at least twice before the end of the year. Powell emphasized cautious adjustments to avoid resurgence of inflation.

(Trump names Powell's successor. When will the Fed chairman's term end? How is the Fed chairman selected? )