It's worth pointing out that debt trap diplomacy was pioneered by the US backed IMF. While China has been exploitative, it goes without saying, that the US has been even moreso.
In case you don't see the comment above, a few books that I know cover this topic include "Superimperialism" (Hudson), "Silent Coup" (Kennard), and "The Divide" (Hickel).
"Confessions of an economic Hitman" is a first-person account of a man involved in these schemes.
As an educated member of a developing country, I know that many so called "foreign investments" from the West are preceded (in fact, it is a requirenment) by huge loans from IMF and the World Bank.
This money is then wired to the investor, who is paid in 10s of thousands euroes for each employee. Every large state-backed loan eventually ends up in the pockets of western investors.
David Graeber: Oh, absolutely. After all, the alter-globalization movement grew out of a broad
global reaction to the Washington consensus, which was never any sort of consensus,
but rather, a vision of the world forcibly imposed on the global South through the third
world debt crisis. I was involved in “drop the debt” campaigns of various sorts since at
least 2000. What got me interested in some of the philosophical issues I ended up ex-
ploring in the book was the peculiar moral power of the notion of debts. So many oth-
erwise sympathetic people, even when told of the terrible, almost unimaginably inhu-
man suffering inflicted on people in the global South because of the depredations of
the IMF, would still respond, “well, that’s terrible that so many children died slow and
painful deaths, but still—surely one has to pay one’s debts!
Sure: two somewhat recent books that cover this are "Silent Coup" by Claire Provost and Matt Kennard, and "The Divide" by Jason Hickel. Another that covers this topic is "Superimperialism" by Michael Hudson.
The purpose of the IMF is not to help countries out of some kind of benevolence, it's to use debt as a control mechanism over other countries.
It expands the discussion to a very relevant area. Speaking as someone highly opposed to China on this front, I did not interpret it as a defense of China.
The article is about "global leadership". There has been 1 example of true global leadership so far in human history, based in Washington DC. To judge the flaws of a prospective new global leadership without reflecting on how they relate to the flaws of the only precedent is absurd.
What is the point of reference???
"This car sucks because it doesn't fly"
"My new MacBook sucks because it can't run local GPT-4 inference"
I checked the comments because I wanted some good sources on the what-abouts. Preferably from the countries affected. The link to Graeber supports the idea that debt, like power, is destined to be abused. It's not really telling me that the outcome was pre-meditated by the national leaders of the US or China.
Leveraging aid packages for UN votes and political concessions is standard geopolitics. For example, just a few weeks ago, it was discovered that the US leveraged an IMF deal to get Pakistan to back the war in Ukraine:
Influencing other countries, which again everyone does. Have they ever specifically threatened to, say withhold vaccines if a vote doesn't go their way?
"They got land and money but lost in the end because now other countries don't like them" is not such a strong argument for having lost in the end, because, well, uhh... how many times has that happened?
The part you're missing is that they poured millions/billions into said projects. Taking those outlays into account it's very reasonable to conclude that they lost, even if they got some money/land.
I mean.. they did loan the money, with all the associated responsibilities and risks of loaning money. And they did do the work. All the agreements were entered voluntarily, so what's the fault here?
Clearly the Chinese construction companies that got the contracts won, but to the extent that the loans aren't paid back its money from Chinese taxpayers going to the people who own those companies. Japan had a big problem with this sort of corruption when they organized their foreign aid this way, which is why they no longer do.
A lot of that money didn't "get back" but ended up in various officials' offshore bank accounts. ( Many executives at China Development Bank got busted for corruption https://www.caixinglobal.com/2021-11-08/chart-of-the-day-cor... ) And then there's the opportunity cost of not having those companies build something useful instead.
Because the road one belt failed. They didn't gain much influence with it, they did the opposite. Eg. the delivered projects aren't good quality either.
And it wasn't going to get any better.
They did also succeed at a small coverup for their construction overcapacity at home.
But let's be clear: all those projects had to be paid.
There's just a difference to get the money without actually delivering those projects, not everyone is happy :)
"David Graeber: Oh, absolutely. After all, the alter-globalization movement grew out of a broad global reaction to the Washington consensus, which was never any sort of consensus, but rather, a vision of the world forcibly imposed on the global South through the third world debt crisis. I was involved in “drop the debt” campaigns of various sorts since at least 2000. What got me interested in some of the philosophical issues I ended up ex- ploring in the book was the peculiar moral power of the notion of debts. So many oth- erwise sympathetic people, even when told of the terrible, almost unimaginably inhu- man suffering inflicted on people in the global South because of the depredations of the IMF, would still respond, “well, that’s terrible that so many children died slow and painful deaths, but still—surely one has to pay one’s debts!"
Of course, the US is widely known for repossessing airports[1], seaports[2], and railways[3], then displacing local workers by flying in your own people. That totally happens all the time - its just that US biased media hiding it from you. The era of this kind of lazy anti-Westernism is over, China is only out for itself, and it will drag countries into its sphere of influence any way it can. "But what about this american thing?" I don't really have the time or need to respond to the thoughts of an "American anarchist activist" which is in all likelihood a nice euphemism for foreign agent or useful idiot.
This is a very humorous comment for you to have made. OP posted a quote from David Graeber that precedes China's Belt-and-Road plans by years. Graeber was instead writing about the West's use of debt to further exploit the global south, and how debt has long had a supposed moral dimension that makes renegotiating it (in the literal and metaphorical sense) exceedingly difficult.
As someone who sporadically did political organizing with David Graeber, I assure you he was sharply critical of US policy as it pertained to exploiting developing countries. He also happened to be a professor of anthropology at Yale and the London School of Economics. How you have determined he was a "foreign agent or useful idiot" is curious. But I know David would have found it as funny as I do.
I don't see how you can drag someone's credentials to prove he isn't a useful idiot. Malcolm Caldwell, famous for being the very embodiment of a useful idiot was a research fellow at UCL.
Other defenders of the Red Khmers had even more impressive credentials. Need I remind you who was the writer of "Distortions at Fourth Hand" and "Manufacturing Consent"?
By definition, all useful idiots have impressive credentials. Without credentials, they are not useful.
Are you talking about the entire Western block where in the 80 when western powers brought support to the milicia in order to piss off the Soviet Union-backed Vietnam, or what?
I share your animus against China, and, lacking the original context, I can see why the post you replied to looks like a defense of China, but I did not interpret it as such. Simply a correction of the too-often-ignorance of the IMF.
US Imperialism is even more brazen than that. Here's a video of the US President commenting on how US troops are in Syria "only for the oil": https://www.youtube.com/watch?v=U10p3Tn9V5Y
This is the same guy who suggested injecting disinfectant or "bringing light inside the body" to cure covid. He also continues to lie about his election loss in a desperate attempt to cling to power. Trump is shameful, but he doesn't represent the long history of the US.
You mean, the long history of overthrowing governments, imperialistic wars and debt-trapping entire nations into selling their state-owned assets to US interest groups and funds?
Your memory may be short lived, but there are many of us who know and remember.
And, by the way, China hasn't started invading random countries all over the world...yet.
Trump didn't start syria, though. Obama did. In fact (while I don't like trump). AFAICT he is the first president in a very long time to not invade a new country.
> In May 2006, the United Nations Mission in Liberia (UNMIL) released a report detailing the state of human rights on Liberia's rubber plantations. According to the report, Firestone managers in Liberia admitted that the company does not effectively monitor its own policy prohibiting child labor. UNMIL found that several factors contribute to the occurrence of child labor on Firestone plantations: pressure to meet company quotas, incentive to support the family financially, and lack of access to basic education.
> Beginning in March 2019, the Washington, D.C. based Center for International Policy funded an investigation into alleged labor and environmental standards violations by Firestone in Liberia, culminating in publication of the February 2020 report, "A Bridge Too Far: Social and Environmental Concerns in Bridgestone's Liberian Rubber Plantation and a Plan for Remediation."The report details labor rights violations of Firestone's collective bargaining agreements with the Firestone workers union; Firestone's failure to honor pension payments for retired Firestone employees; and, Firestone's contamination of local watersheds resulting in elimination of fish and natural wildlife.
The Government already has a monopoly on force and steals our money under the threat of imprisonment in the form of taxation: Now that money is supposed to be allocated into risky investments for abstract, unmeasureable benefits like "soft power," for the benefit of people somewhere else? That creates resentment here. It also infantilizes the Global South.
How much better would it be if we eliminated the IMF, shrank government, and lowered taxes so individuals could freely choose how to benefit the Global South via nonprofit giving? If people don't give voluntarily, why should they be compelled to give in the form of taxation?
I feel like Graeber, an anarchist, would appreciate a decentralized solution like that instead of trying to handle this from the top down.
The view that "you have _your_ money and then the government takes it away from you" ignores that without the society that you are inserted in, the very concept of money would be meaningless. More accurate to say is that part of the social contract for participating in a society that enables you to """make""" that money is that you have a pay a "fee", i.e. taxes (among other things, e.g. abiding by laws which are democratically decided, etc).
Society is a mutually beneficial arrangement. I agree that you should be able to "opt out" and live in a homestead way out in the forest, and that if you do so you should be exempt of taxes. But unless you live in a Kazynscki cabin, that view makes no sense.
Sure, there are some beneficial things that the government does. Like roads, police, fire, regulatory agencies; all the usual things that are cited as "We live in a society" line items. But those things are a tiny minority of government spending.
The VAST majority of the federal budget goes to entitlements. Another massive chunk goes to paying interest on debt because we spent money we didn't have on entitlements. An similarly large chunk goes to defense (Which you could make an argument for, except the VAST majority of which is not actually used for defense, but intervening in far away conflicts)
So going back to all the "society" items, well, the roads, infrastructure electricity, basic services, police, clean water, airports; all the stuff you really need for a society: They're a tiny, minute sliver of the money the government takes from us on a regular basis. You could reduce taxes by 90% and still provide everything you need from a functional society without the parasitic drain on the economy.
The real parasitic drain on the economy is the large accumulations of capital that prevent the Invisible Hand from manifesting. Being alive is an inelastic good. If people have to choose between starving to death or labor for scrip to use at the company grocery, it breaks the efficiency of the market at valuing labor.
The government is both wasting too much money feeding poors who that guy wants to labor or die, and also at the same time forcing too many people to labor for no gain because of whatever thing you're imagining here.
It's quite possible taxation results in more starvation than it prevents. Particularly when used to incentive low income fertility and dis-incintivize production and labor.
Or, perhaps the 60% of American Households that give to charity would be able to take their increased pay, and more efficiently get help to people that need it than a series of large, fraud-ridden government programs.
Nature abhors a vacuum. If western countries are not setting up credit facilities, someone else will.
It might be predatory private entities looking to get their hands on state assets, or it might be the Saudis or Chinese looking to exert more political power.
If we want to seal ourselves off from most of the world and stop trading or participating in regional security arrangements, then this is a reasonable approach.
I think people underestimate how much of our material wealth in the west is reliant on these trade and security arrangements.
Countries like the United States can pursue a North Korean model and try to produce everything domestically, but the standard of living is going to plummet.
If taxation is theft, why don’t you move to Somalia or start a cartel in a remote region of Mexico and live there? Or perhaps there are benefits you are receiving from living with a functioning government?
Sovereign borrowers are free to default on their debts. This is just a business decision, not a moral failing. But once they default they shouldn't expect more loans from the IMF or anyone else. The IMF was never intended to be a charity, and there are other international programs for distributing food aid to countries experiencing famine.
Except if you read the article it's arguing that the opposite happened.
>Note that although this is a debt trap, it isn’t really a case of “debt-trap diplomacy”, as some people accuse. Debt-trap diplomacy is where you get a country to owe you money, and you force it to make geopolitical concessions in exchange for loan forbearance. China doesn’t appear to be doing that; instead it appears to simply be walking away with as much of the money as it can, and thumbing its nose as it walks away, and leaving developing countries bitter and resentful.
>But in the long run, this is almost certain to hurt China’s image in the world. Back when the money was flowing, the countries of the Global South saw China in a highly positive light — after all, the West’s money always comes with strings attached.
>But because the Belt and Road was so ill-conceived, this warm fuzzy feeling always had an expiration date. Now that the Belt and Road has basically failed, and the cash faucet has been shut off, delight at China’s seeming largesse is clearly going to be replaced with resentment and distrust. Acting like a mafia loanshark is not generally a way to win friends and influence people.
They ended up with ownership of a port and a lot more though. The point of the article is that they are being short-sighted by angering everyone, but you saying that they did the opposite of predatory lending is wrong. It was absolutely predatory lending, just not well executed.
Is the port worth it though? The article points out it's not very busy and doesn't seem to have been made well. It seems like China is acting on very short term thinking here.
So if this is all accurate we should see a decline in new BRI projects and a preference for IMF and World Bank financing over institutions where China plays a larger role like the NDB. Let’s wait and see.
Because it's mostly distressed lending, the preference is almost entirely on the lender not the borrower. IMF loans are required to be fairly transparent, while B&RI have so far been opaque (not clear what the terms, payment priority, or valuation of projects as collateral). The IMF won't even lend to countries where the lending would be used to pay off other creditors (since that's a transfer between creditors). It's unclear what China's response will be if the projects they claim are then nationalized (dams, ports and railroads are likely to be considered national infrastructure). Decisions to accept loans aren't made by the population that will pay and when governments change so do priorities.
Since there's already a China debt problem (and ROI problem) though, it's more likely the loans just dry up. That already started in 2017 (see graph in article).
There is no multipolar world. It's just the US and China. Their combined GDP is bigger than the next 33 countries combined.
As a Danish person I wish the EU had actual hard power but in the end of the day Denmark doesn't have the same geopolitical interests as Hungary, Bulgaria, and Slovakia. In fact their views are the polar opposite of ours.
What do you mean our views are opposite? I am Bulgarian and I very much agree with you that we need an actual European army.
Now, you can always assume I only say this because I live in a poor country that everyone pushes around. But when we zoom out a bit, the same could soon apply to the entire continent. We are not united and that's bad for all of us because our competitors are more much bigger and better integrated.
Did you have something else in mind? I don't exactly pay any attention to US politics but I am sure their states are competing with each other because they have their own interests in mind. But that applies to cities too, does it not?
Well, I don't know about the others in your list but russian propaganda is very strong here but even those who "support" them wouldn't want to live there, if you know what I mean. It's more of anti US thing than pro-Russia things.
I guess people don't like hegemonies unless they greatly benefit from them. Go figure.
The US is much more cohesive than the EU, they all speak English and bear firearms.
Of course Danish interests are not aligned with the rest of the EU. They live in a hygge bubble, not having been under Russia's boot. Their worst problems are immigration and Islam. Denmark has the most opt-outs compared to any EU state: Euro, EU Blue Card, Europol. It took a second referendum this year to abolish their defense opt-out. And of course this is bad for all of us.
> Did you have something else in mind? I don't exactly pay any attention to US politics but I am sure their states are competing with each other because they have their own interests in mind. But that applies to cities too, does it not?
This is pretty much solved by the enumerated powers clause. Outside of the dozen or so federal powers the central government handles, the states operate mostly autonomously (something non-Americans, particularly Europeans, find impossible to comprehend; at least based on common internet discourse).
Presumably, the same could be done for a Federated EU; but it's unlikely a good chunk of the nations (particularly the wealthy ones) would be willing to cede their ultimate sovereignty to a central power.
GDP is the wrong metric. Military strength and sustainability are the most important drivers for a country. Example: This is why North Korea is able to survive despite being blacklisted economically from most of the world. China is enabling its sustainability.
There is no wrong or right metric. Every aspect of a nation's existence has an effect on its survival.
Mexico has a very weak and self-defense oriented military, but is under no threat of occupation or annexation. Mostly because it's continued existence benefits both the US and Canada, which offer a proxy protection. It also keeps relatively good trade relations with many powerful nations and has a large consumer economy.
Or Mongolia, which exists because neither of it's neighbors could reasonably occupy it or would allow the other to do so.
Military strength is one way to ensure protection. It's certainly not the only way.
Mexico's military is unable to control at least 30% of its territory and there is discussion of an American "special military operation" to destroy cartels.
It's not just internationally. China has done that to its own people. Or worse. Look at Evergrand and Sunac.
The government of China let developers sell un-built apartments to future residents. The residents not only paid down payments, but took on a mortgage obligation for an un-built building.
"The majority of new properties in China — about 90% — are sold before being completed." - CNN.
This produced a terrible incentive for developers to do huge numbers of housing starts and then not finish the building.
In most of the rest of the world, developers have to finance construction with their own money or a high-interest construction loan, then sell the completed building. This gives developers a strong incentive to finish the job. Building quality control is often a problem, but unfinished projects less so.
Not in India, developers can sell before building but the money is in an escrow and released as the construction progresses. Also penalties and interest on any delays. I don't think selling unbuilt buildings is the bad thing, it's having no regulations or protections alongside that.
> the money is in an escrow and released as the construction progresses.
too.
The problem is it doesn't work: the fund release schedule can't be perfectly aligned with each stage of the constitution on a cost basis. There's a large amount of unfinished buildings (rather than not started at all) at a certain stage - it's the point when the_amount_of_fund_released - the_construction_cost_so_far is maxed.
I like the USA solution more - no mortgage for unfinished buildings. Developers can still sell it, but good luck.
There's something very powerful behind incentives level thinking, it really does push you into second and third order effects and meta level interactions to think "if this then what next". I've been wanting to step up my level of engaging and contemplating incentives in the generic.
> The residents not only paid down payments, but took on a mortgage obligation for an un-built building.
So what? They had a choice between paying more money for already built house now or paying less money but accepting the risks of developer's failure.
> This produced a terrible incentive for developers to do huge numbers of housing starts and then not finish the building.
Ugh, it's not like venture investing when developers are not liable for the failure of the company. The law usually (don't know exactly about China) skews the balance in favour of property buyers.
> In most of the rest of the world, developers have to finance construction with their own money or a high-interest construction loan, then sell the completed building.
And the cost of that high-interest construction loan is paid by the future residents. Not something you want when your goal is to give most of the population cheap housing.
A very large number of Chinese citizens will lose their savings to these ponzi-esque construction schemes. Vast waves of defaults may take the banks with them. In Albania something similar caused mass civil unrest.
> Why don’t poor people just get more money? It would solve most of their problems.
Well, every clever businessman will simply increase the prices in such a situation since more people can now afford to pay more. Problem solved *not*. Markets are self-calibrating.
The construction companies promised to build houses and funded the construction with sales of promises to build more houses. Now real estate is crashing, and the construction company is going bankrupt, and you’ve got home buyers who are underwater on a mortgage for a house that is not built. The construction company has billions in unearned revenue that it cannot afford to deliver on.
This is an absolute nightmare. Hundreds of billions of dollars in liability. And somehow getting the funding to complete these works will not improve their financial standing because they already took all the money for it.
"The majority of new properties in China — about 90% — are sold before being completed." - CNN"
Not sure if this is some kind of joke. Many countries have laws that permit selling appartments when they are about 80% complete. Some have lower, some higher percentages.
Just your average low-tier negative CNN propaganda, I guess.
In the UK you can buy "off plan", but you only pay a deposit, and that goes into escrow until you get the keys, the developer can't touch the money until then
Not quite. In india properties get loans during early construction as well, and the amounts are disbursed in tranches based on completion progress. Timelines must be filed publicly with RERA and a non RERA approved property is a red flag. No escrows as such for loans taken by buyer.
What I call loan is a similar arrangement to mortgage. Buyer pledges property as collateral, pays about 20% out of pocket, rest is a debt to be paid. Defaults result in loss of ownership of property. The agreements are tripartite. Builder gets paid from the loan taken out by buyer in tranches and builder reputation matters along with market value assessment and buyer's credit profile for obtaining a loan.
Other countries have the rule of law and you can sue a developer. That’s not possible in China. I did read where disgruntled Chinese are withholding payments on these unfinished buildings. Not sure what the repercussions could be for those who do it.
Nothing you stated in your comment contradicts the statement from CNN that you are quoting. I'm guessing this is about CNN describing to its American readers what you take as a natural harmonious fact?
Sinophobic pandering is hot all over. "Nothing to miss, here" is the intent, as if it would be crippling somehow for viewers to discover that not all of the world is developing.
CNN is addressing its American audience to a practice that is not familiar in the USA. Yes, CNN is USA-centric, because...it is an American news company with a primary user base in America.
That other countries mortgage unbuilt homes is more a "what about" rather than "facts needed for reader to understand."
"American news company with a primary user base in America."
And it's infamous for misrepresenting the other parts of the world to better suit USA's interests. Cases of outright lying and negative propaganda that they know is a lie abound.
When you do it at the scale described, and make real estate market with large bubbles the corner stone of your economy, you get a unique situation than cannot just be explained away with "other countries do this too"
You can buy a house in the US from a developer before it is built. I think maybe the difference is that if something goes wrong you have a good chance of suing the developer. That may also be the case in China. I don't know.
You can sign a contract to buy a house from a developer before it is built. No bank will give you a mortgage before the house is built (even if they give you pre-approval), but of course you could pay in cash if you had that and wanted to (taking risk that the builder might go out of business and you will be SOL).
Since most people buy homes with mortgages, most homes in the USA aren't bought before they are built.
For US residential homes the bank has set milestones where they release funds. If the developer leaves the house half-built they only get half-paid (give or take). A similar thing applies to renovations.
Banks can and do refuse to pay until things are completed and city inspections pass the work. Could a city inspector collude with a bank and developer to rip off customers? Sure... but even if that happens it can only be small scale. The odds of the scheme collapsing increases exponentially with every additional city/bank/developer participating.
Politically China works differently. I'm sure there are plenty of developers doing good work. That clearly must be the case - not every building is a pile of garbage. But being a more centralized single-party state with state-owned banks the opportunities for shenanigans is obviously higher. It may also be driven by how much local budgets are influenced by new projects rather than ongoing property taxes. There is an incentive to approve projects and it is embarrassing to admit we should be tearing down the new building because everyone involved cut massive corners... that might also scare off new customers for the next project. Better to cover everything up and keep the scam going.
For that matter state owned banks from any country are well-known for perpetually extending loans rather than admitting the loan is garbage. This is not unique to China nor news to anyone.
I think this is a key point to catch in this discussion. Like a sibling comment said, this is the way things are done in his EU country, but the big difference is that EU countries are higher-trust with way more financial regulation and accountability. China's economy is fundamentally not predicated on the rule of law and that's an important point here.
This is not true. In China, buyers have to pay the down payment and mortgage before the apartment is built, but for some reason if the builder left the apartment half built, buyers do get their money back from the bank.
No. You don’t pay off a mortgage before the home is built lol. That’s the dumbest thing I’ve ever heard.
You have to pay in full to the developer. By taking out a loan which consists of a downpayment.
The developer now has 100% of the money. And the buyer has nothing but debt.
The developers are either never breaking ground or never completing the building. Using the money to buy more land and sell more homes.
When they file for bankruptcy. The banks still need the money back from the buyer. Since the buyer has no home because it was never finished they effectively lose their investment and their lives as debt collection takes their cars, live-in home. Etc.
Stop spreading misinformation that buyers aren’t suffering. This is people’s lives at stake. Lying to people and pretending like nothing is wrong makes you a terrible human being when people’s lives are at stake.
Can you please make your substantive points without breaking the site guidelines? You broke more than one of them with this post.
I'm sure you have a good point about mortgages and developers and banks, but it's more important not to set the forum on fire, and that is what the site guidelines exist to avoid.
You have to pay in full to the developer. By taking out a loan which consists of a downpayment.
The developer now has 100% of the money. And the buyer has nothing but debt.
The developers are either never breaking ground or never completing the building. Using the money to buy more land and sell more homes.
When they file for bankruptcy. The banks still need the money back from the buyer. Since the buyer has no home because it was never finished they effectively lose their investment and their lives as debt collection takes their cars, live-in home. Etc.
Stop spreading misinformation that buyers aren’t suffering.
"[Then] there is the problem of unfinished projects, even if there is demand. The majority of new properties in China — about 90% — are sold before being completed, meaning that any setbacks for home builders could directly impact buyers, according to economists."
What is the problem with the paragraph? It describes a practice that is common in China but may not be known to CNN's audience. It mentions a pitfall of the practice, which is true and has played out many times, in China and elsewhere, easily verifiable. Nowhere does it say that it's a China only problem.
In fact, read the whole article before playing the victim. Not long. You'd be hard pressed to say it's more negative that a US-related economy news piece.
It's China, you can't see anything they do in the scale they do it in anywhere else in the world. What's worse, not building enough or building too many?
> In most of the rest of the world, developers have to finance construction with their own money or a high-interest construction loan, then sell the completed building. This gives developers a strong incentive to finish the job.
I don't know how it works in other countries but in France for new apartments you almost always buy them before or during construction, which allow new residents to settle in right after the construction has finished instead of waiting for months for the sale.
The way we deal with the incentive alignment is simply by having a justice system that makes sure contracts are actually enforceable and mandatory insurance policy for developers should anything bad happen to their company.
this was banned recently (around 2020), also that sounds as legal as how stocks work in the first place during age of exploration and an intervention within seems maybe not strictly necessary.
That enrico account seems a bit iffy. Seems somewhat biased towards trump, Russia, China (maybe NK too?), and consistently against Biden and Ukraine (but nothing else?)?
Is the chart in the blog wrong? Because it looks like investments for Belt & Road have collapsed, which would be odd if it had been a success rather than a failure.
The report isn't arguing that it was a success rather than a failure. Their figure 1 is a similar chart, lacking a few years of data, but since the inflection point was back in 2016 that doesn't really matter.
Poor countries need a lot of investment (0). Historically many investments failed and creditors ruined the country and made live of the involved people even more miserable. My gut feeling is that chinese investors are a little bit smarter but there are obviously problems as well.
(another gut feeling: china has too much money, they can't invest in US treasuries anymore) (1)
This US/China conflict is just stupid. Nearly everybody looses.
(0) Adam Tooze "The west has failed to keep its promises on aid"
Part of the reason that developing-world investment has traditionally been hard is because it likely requires a longer perspective than most investors have. Build a decent rail network in Laos and it might take 75 years for them to leverage it to a level of development that pays it back, which gives you 75 years of risk it might all come crashing down. You can't float that meaningfully on the public markets, but a state can justify it, both because they can wait on the payback, and swallow the loss if they have to, and because they can value the economic cooperation and dependency it generates.
I wonder if an alternate route would be to use aid money as subsidy to attract private investment. Juice the yield on bonds to too-compelling-to-ignore, or offer backfill on short-term revenues if the project is speculative, and you could attract the world's financiers.
On the other hand, perhaps there's a hostility to existing finance to begin with. A lot of the developing world has had bad experiences with the mainstream Western financial system-- their banks and associated institutions are the ones coming in and demanding austerity, privatizations, and currency manipulations to settle their debts. Perhaps China just represents a fresh face: all they need to do is squeeze a little less to look good by comparison.
It also requires something that western capitalism doesn't really structure itself around: an actual moral compass that isn't just shadow imperialism which is what "confessions of an economic hitman" involves.
You'd want to genuinely want improvement for the people. Not for enriching a new set of brutal and corrupt elites that will do the bidding of the CIA/IMF/whatever, but actually want the people's lives improved in living standards, education, economic independence, etc.
Kind of like how China fast-forwarded themselves. In rose tinted glasses, I can see the Belt and Road kinda being like that, but of course it left out the development of manufacturing / stealing of technology that really underpinned China's rise.
I think it is true of Chinese development and western aid as well that the rich country gets the blame. The poor country is sometimes corrupt or ineffective. They could also say no.
The problem with listening to economists is that if your only tool is interest rates everything looks like a loan.
No sovereign nation should be borrowing from anywhere other than itself.
Instead firms should be selling equity denominated in the local currency for foreign currency - where they need foreign imported capital equipment. If nobody wants to invest on those terms then you have to build the equipment yourself.
For a nation to develop successfully it needs patient money, not hot money.
Small, poor countries have no practical way to bootstrap and build equipment themselves. That might have worked in the 18th century but not today.
Loans are patient money. As long as the borrower pays as agreed then they can do as they please. Whether the original lender holds the asset to maturity or sells it on to another investor makes no difference.
Most of the high profile failures with foreign investment stem from corruption and incompetence. Switching from debt to equity won't cure that.
It didn't work in the 18th century either. Poor nations mostly entered the industrial age through colonialism rather than indigenous enterprise. The moment powerful nations could build ships and cross oceans, it was game over for the rest of the world.
>Most of the high profile failures with foreign investment stem from corruption and incompetence. Switching from debt to equity won't cure that.
It could change who gets left holding the bag, though.
Presumably if Chinese firms held equity in the hydroelectric plants, they would care about whether they were built correctly and won't collapse. As it stands they get paid either way (according to the article).
That's meaningless. No capitalist is so patient as to wait indefinitely. The time value of money is key here. What you're talking about essentially amounts to a donation, not a real investment.
The problem with not listening to economists is that you then suggest policies which economic history reveals are seriously flawed. Why are foreign investors likely to accept shares in your business denominated in, say, Rupiyah? Especially if it can't be "hot money", which implies they won't be able to resell it. As for building the equipment yourself: are you kidding? This kind of import-substitution failed spectacularly all over the developing world in the 1950s.
I find it weird. Nobody would listen to me pontificating about how to design a microkernel and talking about "the problem with programmers".
I predict to you that demand for shares in emerging country currency in exchange for real goods will be low, and that no country will ever get rich by this method, because none ever has. As for system dynamics, I don't know about it - maybe it's great. But I do know a little economics, and a glance at NBER reveals very many deeply practical applications from unemployment to inequality to supply chains to sexual harassment: https://www.nber.org/papers?page=1&perPage=50&sortBy=public_.... So I'll repeat my point: do you know economics? If not, what makes you so confident to pontificate about it?
Having a Math degree doesn't make you a mathematician if you've stopped doing Math since then… That's even more true if, as Noah Smith, you got your diploma in order to become a pundit.
From his own words[1]:
> Back in 2006, the original reason I thought of getting an econ PhD was actually to become an econ pundit and writer.
If anything, he's a former economist (until 2016) who's now a pundit discussing many topics going way beyond his academic expertise (hence my “know-it all” moniker above).
I've recently rode through a Belt&Road project: The Lao high-speed train. In my opinion, it shows the complete failure of the Chinese government. The high-speed train is a reasonably great train that goes through dozens (hundreds?) of mountains and rivers (through tunnels and bridges). It does that while enabling you to work from the comfort of your chair. And while it's not high-speed (as in 300Km/h), it is reasonably fast.
The train station locations, however, are just non-sense. This is because they are too far, and for many stations, there is no "road" to connect to the city. Couple that with the retarded system they have to check-in which requires you to be in the station one hour before your train departs and suddenly a 40 minutes ride becomes a 2.5 hours ride. Might as well just use a regular bus?
In my opinion, the Chinese government is still living in the 80s (along with 80s technology). The Chinese economy (or parts of China) is living in a parallel reality with companies that are quite developed if not world-class. This means the Chinese government can "execute" quite advanced projects while being a peasant itself.
It's not clear what's sustaining the central government in China, or what's the level of discontent in the productive provinces.
I'm not sure if it's comparable, but the Japanese Shinkansen had similar issues when it's first built. A lot of the stations didn't go through the existing central stations due to costs and other logistical problems. This is why there are a lot of stations that the Shinkansen goes through that are called "Shin-XXX" (e.g. Shin Osaka). During a period of fast economic growth this isn't a big issue because the areas around these stations quickly become hubs or alternative downtown areas of their own. Now, I don't know if this will happen to CN but it is a somewhat repeatable outcome of building important railroad hubs in newly developed areas.
I don't think this is a problem for CN because in China, you can take the subway after getting off the train. It's okay to have the station afar from the center. This is the not case with Laos but I don't think the people planning that really cared.
This is a much older phenomenon, called railway town, and it is so frequent that it has its own Wikipedia page [1]. At smaller scale this also happens in cities where new underground lines are built. It's a well-established way of paying for public transport. See [2] for a discussion.
Excellent example. My onetime Japanese distributor was walking distance from Shin-Yokohama station and I would never have guessed the history
>Shin-Yokohama Station opened on 1 October 1964, with the opening of the Tokaido Shinkansen.[4] At the time, the surrounding area was completely rural, and the site was selected as it was the intersection of the Tōkaidō Shinkansen tracks with the existing Yokohama Line
Except your productive components are what makes these guns. There is probably a certain balance or exchange of power that we do not understand. Or maybe China is on the cusp of an upheaval but because of its size its revolution happens on a longer time frame that we do not understand.
I had the same opinion when taking high speed train for the first time in China. Many stations seemed to be far away from anything and there was a lot of process when you get to the station. That's not the case now as all of those areas have sprung up, along with convenient transportation via subway/metro to the places you'd want to get to. You can also board the train quickly now.
I'm not sure if that makes sense for Laos, but for China it seemed to work pretty well.
It seems like everything you said applies to Airports as well. Hardly any of them are anywhere near where you'd actually want to be (city center). Over the decades, the infrastructure will build up to connect the airport to the city. In my home (Vancouver) they weren't connected by a train for 73 years.
Airports of course also have enormous 'processing' time. It's normal to arrive 2 hours early.
Also, airports are really loud and smoggy. They depress real estate prices near by. In California there are lots of small airports that could have been turned into bigger ones but the neighborhoods don't want it.
I visited northern Laos in 2013. Speaking to people along the construction route, many didn't even know what a train was. None had ever seen one before.
I only saw a single paved road in the country, which I hitchhiked on from the Chinese border to Luang Prabang. Most drivers on the road were Chinese, but none were coming to visit Laos; they were driving through to Thailand.
So I came to understand this train was built to connect Thailand and China, rather than for Laos.
They built the terminus in far away place for cheap land costs and easy acquisition. Now the expectation is that there will be further developments over there including folks moving nearby. It'll be huge win for the train company since they can starts charging very high land rent compared to their purchasing price.
This seems fine. It'd be like buying a bunch of desert in Clark County in the early 1950s and then building Las Vegas. They're creating value for the land that they bought.
It seems like the very real risk for China here is if all these countries decide to act collectively on the debt. National debt isn't like other sorts after all, there is ultimately no higher authority that can intervene or that China can appeal too.
This article makes me think about "tofu-dreg projects" [0]
Poor quality construction work prevalent in mainland china. If you
look for content with this keyword, you will find jaw dropping
videos of constructions workers bending or breaking "rebar" with their hands,
Owners chipping away concrete in high-rise buildings like its sand, etc.
Of course some of this can be propaganda, but considering it has a local name,
there must be truth to it.
It does have a propaganda feeling to it. I went thru the top 25 YouTube videos for tofu dreg recently, and they had that undertone of hoping for China to collapse.
There are crappy building practices in any country. The real question is prevalence, which I can’t seem to answer.
Then where are the videos of western tofu dreg? China has a literal army of propaganda posters. Am I supposed to believe such problems exist and it never occurred to them to push it?
> In July 2021, another occurrence of tofu-dreg construction happened in Zhengzhou in Henan province where the entire city was put at a standstill due to torrential rains and flooding. The city was referred to as a “sponge city” because of how vulnerable the drainage system was. Some argued that the city was not to blame since they were experiencing unprecedented rain levels, but there was evidence later found pointing towards a weak infrastructure.
Damn, sounds like NYC this past week. Here's one of many videos:
I'm not totally sure I understood what tofu dregging was, but there's no shortage of low quality construction, collapsing bridges, unmaintained infrastructure, etc. in the US.
Fascinating. Within the past 2 years, the US suffered 98 people killed in a condo collapse, and a fairly serious (though thankfully non-fatal) bridge collapse. There's also the especially egregious case a bit further back of the New Orleans levies failing during Katrina. Must have been undercover Confucians.
I could provide examples all day of how Chinese culture and the CCP allows this type of phenomenon to continue unabated.
It isn’t to say that there are serious infrastructure concerns in America that continue to go unaddressed.
But the scale of graft and shoddy construction in China beggars belief. It extends into every aspect of enterprise, taking shortcuts is the absolute cultural norm.
Our USA global empire from 1945 to present invests mostly in resource extraction in poor and underdeveloped countries. Aid comes in the form of providing food and medicine, probably the worst help that could be given to countries with virtually no infrastructure.
China pays for infrastructure to be built of the type and scale in countries that haven't seen this type of investment since their respective post-war expansionary periods, which most likely ended 60+ years ago. We Americans don't like it, because this represents moves towards the attempted changing of the guard, but we can't do anything but complain. At this point we can't invest in our own infrastructure, much less improve other countries'. But it feels like these infrastructure investments should have happened decades ago, and their net effects would have been to raise the standard of living of millions, or billions. Agreed that this plan seems to be winding down, unfortunately it doesn't seem to work.
It looks like China will actually pivot their economy to tech. Airplanes, computers, microchips, and soon, software...
I'm surprised to see this level of confusion on what "investment" means, on a venture capital related forum of all places.
If financing by providing loans is not investment, well, then we are saying that it's something like the article seems to imply, which is that you have to end up with an ownership stake in order for something to be an investment?
If you were buying government bonds, would you not consider that to be an investment?
Non-equity lending is definitely still investment, and is probably less predatory...
Fair point, however I was responding in context of the parent tirade which encodes lots of political subtext, and my use of italics was attempt to suggest a particular practical connotation (investment == partnership) rather than a strict technical definition.
Specifically referring to this line of the parent comment:
>China pays for infrastructure to be built of the type and scale in countries
When in fact China did not just "pay for" these projects. And they are not "invested" in the prosperity of these people any more than the US was.
If you're a small poor country and you borrow money from China to build infra on your territory, what happens if you simply... don't pay back the loan after the infra is built?
This whole piece is remarkably silly depending on perspective. I mean I get it, China bad, sure. But when the author says "hospitals" ,"bridges" and such I think he does get that they exist in a place of desperation and poverty but can't seem to actually appreciate what that means. Not borrowing internationally, owing China money, poor quality constructions, chinese imported labor and conflicts with locals are all nothing when you consider just how bad poverty is. It's something.
It's like rich people telling poor people to stop getting avocado toast in the US.
Given China's hostility, you would think europe and america would wake up and get past their moral high grounds but having someone to look down on is hell of a drug.
Starving and impoverished people don't want a lecture on democracy and human rights.
To me, the most terrifying thing is considering how much of this democracy and human rights I enjoy here is dependent on our economy and military being #1.
203 comments
[ 4.6 ms ] story [ 88.8 ms ] threadAs an educated member of a developing country, I know that many so called "foreign investments" from the West are preceded (in fact, it is a requirenment) by huge loans from IMF and the World Bank.
This money is then wired to the investor, who is paid in 10s of thousands euroes for each employee. Every large state-backed loan eventually ends up in the pockets of western investors.
https://davidgraeber.org/wp-content/uploads/debts-history-im...
The purpose of the IMF is not to help countries out of some kind of benevolence, it's to use debt as a control mechanism over other countries.
What is the point of reference???
"This car sucks because it doesn't fly"
"My new MacBook sucks because it can't run local GPT-4 inference"
https://theintercept.com/2023/09/17/pakistan-ukraine-arms-im...
But has the US threatened countries if they don't vote with them at the UN, or seized their land and/or assets for non payment of debt?
https://apnews.com/article/united-nations-china-europe-ukrai...
Have they ever put countries into debt then stolen land based on that debt?
Your example btw was about raising arms for a third party conflict, not for something that directly benefits the US. Which weakens your argument.
China won, all that money invested was almost all to Chinese construction overcapacity. So that capacity was exported to useless prestige projects.
Poor countries paid the bill ( mostly) and China is paid twice (foreign loans going to Chinese workers is a double win).
And getting back the money from loans is also a win.
A lot of that money didn't "get back" but ended up in various officials' offshore bank accounts. ( Many executives at China Development Bank got busted for corruption https://www.caixinglobal.com/2021-11-08/chart-of-the-day-cor... ) And then there's the opportunity cost of not having those companies build something useful instead.
And it wasn't going to get any better.
They did also succeed at a small coverup for their construction overcapacity at home.
But let's be clear: all those projects had to be paid.
There's just a difference to get the money without actually delivering those projects, not everyone is happy :)
https://davidgraeber.org/wp-content/uploads/debts-history-im...
Edit: responded to dead comment
[1] https://www.africanliberty.org/2018/09/10/like-zambia-sri-la...
[2] https://saharareporters.com/2021/11/26/china-takes-over-ugan...
[3]https://www.business-humanrights.org/en/latest-news/kenya-ch...
As someone who sporadically did political organizing with David Graeber, I assure you he was sharply critical of US policy as it pertained to exploiting developing countries. He also happened to be a professor of anthropology at Yale and the London School of Economics. How you have determined he was a "foreign agent or useful idiot" is curious. But I know David would have found it as funny as I do.
Other defenders of the Red Khmers had even more impressive credentials. Need I remind you who was the writer of "Distortions at Fourth Hand" and "Manufacturing Consent"?
By definition, all useful idiots have impressive credentials. Without credentials, they are not useful.
Are you talking about the entire Western block where in the 80 when western powers brought support to the milicia in order to piss off the Soviet Union-backed Vietnam, or what?
That's easy. Generally speaking, anyone who is critical of empire-building is seen by that empire's apparatchiks as a "foreign agent or useful idiot."
The criticism doesn't come from any position of principle, it's just us-versus-them tribalism.
You mean, the long history of overthrowing governments, imperialistic wars and debt-trapping entire nations into selling their state-owned assets to US interest groups and funds?
Your memory may be short lived, but there are many of us who know and remember.
And, by the way, China hasn't started invading random countries all over the world...yet.
Bhutan, India, and Vietnam would have a word.
I spent just 2 minutes for this. I could go on, but you get the picture.
> In May 2006, the United Nations Mission in Liberia (UNMIL) released a report detailing the state of human rights on Liberia's rubber plantations. According to the report, Firestone managers in Liberia admitted that the company does not effectively monitor its own policy prohibiting child labor. UNMIL found that several factors contribute to the occurrence of child labor on Firestone plantations: pressure to meet company quotas, incentive to support the family financially, and lack of access to basic education.
> Beginning in March 2019, the Washington, D.C. based Center for International Policy funded an investigation into alleged labor and environmental standards violations by Firestone in Liberia, culminating in publication of the February 2020 report, "A Bridge Too Far: Social and Environmental Concerns in Bridgestone's Liberian Rubber Plantation and a Plan for Remediation."The report details labor rights violations of Firestone's collective bargaining agreements with the Firestone workers union; Firestone's failure to honor pension payments for retired Firestone employees; and, Firestone's contamination of local watersheds resulting in elimination of fish and natural wildlife.
How much better would it be if we eliminated the IMF, shrank government, and lowered taxes so individuals could freely choose how to benefit the Global South via nonprofit giving? If people don't give voluntarily, why should they be compelled to give in the form of taxation?
I feel like Graeber, an anarchist, would appreciate a decentralized solution like that instead of trying to handle this from the top down.
Society is a mutually beneficial arrangement. I agree that you should be able to "opt out" and live in a homestead way out in the forest, and that if you do so you should be exempt of taxes. But unless you live in a Kazynscki cabin, that view makes no sense.
The VAST majority of the federal budget goes to entitlements. Another massive chunk goes to paying interest on debt because we spent money we didn't have on entitlements. An similarly large chunk goes to defense (Which you could make an argument for, except the VAST majority of which is not actually used for defense, but intervening in far away conflicts)
So going back to all the "society" items, well, the roads, infrastructure electricity, basic services, police, clean water, airports; all the stuff you really need for a society: They're a tiny, minute sliver of the money the government takes from us on a regular basis. You could reduce taxes by 90% and still provide everything you need from a functional society without the parasitic drain on the economy.
The real parasitic drain on the economy is the large accumulations of capital that prevent the Invisible Hand from manifesting. Being alive is an inelastic good. If people have to choose between starving to death or labor for scrip to use at the company grocery, it breaks the efficiency of the market at valuing labor.
That's what those entitlements pay for.
Maybe you think that's not worthwhile, fair enough. Unfortunately for you, many of your fellow citizens and taxpayers disagree.
Like, that is an extremely strong claim and I'd appreciate if you could provide some evidence for it.
It might be predatory private entities looking to get their hands on state assets, or it might be the Saudis or Chinese looking to exert more political power.
If we want to seal ourselves off from most of the world and stop trading or participating in regional security arrangements, then this is a reasonable approach.
I think people underestimate how much of our material wealth in the west is reliant on these trade and security arrangements.
Countries like the United States can pursue a North Korean model and try to produce everything domestically, but the standard of living is going to plummet.
True colors emerge.
<https://news.ycombinator.com/item?id=36317559>
>Note that although this is a debt trap, it isn’t really a case of “debt-trap diplomacy”, as some people accuse. Debt-trap diplomacy is where you get a country to owe you money, and you force it to make geopolitical concessions in exchange for loan forbearance. China doesn’t appear to be doing that; instead it appears to simply be walking away with as much of the money as it can, and thumbing its nose as it walks away, and leaving developing countries bitter and resentful.
>But in the long run, this is almost certain to hurt China’s image in the world. Back when the money was flowing, the countries of the Global South saw China in a highly positive light — after all, the West’s money always comes with strings attached.
>But because the Belt and Road was so ill-conceived, this warm fuzzy feeling always had an expiration date. Now that the Belt and Road has basically failed, and the cash faucet has been shut off, delight at China’s seeming largesse is clearly going to be replaced with resentment and distrust. Acting like a mafia loanshark is not generally a way to win friends and influence people.
Since there's already a China debt problem (and ROI problem) though, it's more likely the loans just dry up. That already started in 2017 (see graph in article).
As a Danish person I wish the EU had actual hard power but in the end of the day Denmark doesn't have the same geopolitical interests as Hungary, Bulgaria, and Slovakia. In fact their views are the polar opposite of ours.
Now, you can always assume I only say this because I live in a poor country that everyone pushes around. But when we zoom out a bit, the same could soon apply to the entire continent. We are not united and that's bad for all of us because our competitors are more much bigger and better integrated.
Did you have something else in mind? I don't exactly pay any attention to US politics but I am sure their states are competing with each other because they have their own interests in mind. But that applies to cities too, does it not?
I guess people don't like hegemonies unless they greatly benefit from them. Go figure.
Of course Danish interests are not aligned with the rest of the EU. They live in a hygge bubble, not having been under Russia's boot. Their worst problems are immigration and Islam. Denmark has the most opt-outs compared to any EU state: Euro, EU Blue Card, Europol. It took a second referendum this year to abolish their defense opt-out. And of course this is bad for all of us.
https://en.m.wikipedia.org/wiki/Danish_opt-outs_from_the_Eur...
This is pretty much solved by the enumerated powers clause. Outside of the dozen or so federal powers the central government handles, the states operate mostly autonomously (something non-Americans, particularly Europeans, find impossible to comprehend; at least based on common internet discourse).
Presumably, the same could be done for a Federated EU; but it's unlikely a good chunk of the nations (particularly the wealthy ones) would be willing to cede their ultimate sovereignty to a central power.
Mexico has a very weak and self-defense oriented military, but is under no threat of occupation or annexation. Mostly because it's continued existence benefits both the US and Canada, which offer a proxy protection. It also keeps relatively good trade relations with many powerful nations and has a large consumer economy.
Or Mongolia, which exists because neither of it's neighbors could reasonably occupy it or would allow the other to do so.
Military strength is one way to ensure protection. It's certainly not the only way.
You're only reinforcing the point with your flights of fancy, not countering it.
The government of China let developers sell un-built apartments to future residents. The residents not only paid down payments, but took on a mortgage obligation for an un-built building. "The majority of new properties in China — about 90% — are sold before being completed." - CNN. This produced a terrible incentive for developers to do huge numbers of housing starts and then not finish the building.
In most of the rest of the world, developers have to finance construction with their own money or a high-interest construction loan, then sell the completed building. This gives developers a strong incentive to finish the job. Building quality control is often a problem, but unfinished projects less so.
https://en.m.wikipedia.org/wiki/Real_Estate_(Regulation_and_...
> the money is in an escrow and released as the construction progresses.
too.
The problem is it doesn't work: the fund release schedule can't be perfectly aligned with each stage of the constitution on a cost basis. There's a large amount of unfinished buildings (rather than not started at all) at a certain stage - it's the point when the_amount_of_fund_released - the_construction_cost_so_far is maxed.
I like the USA solution more - no mortgage for unfinished buildings. Developers can still sell it, but good luck.
Once you can turn everything into a model and an equilibrium the biggest systems of the world become much clearer.
So what? They had a choice between paying more money for already built house now or paying less money but accepting the risks of developer's failure.
> This produced a terrible incentive for developers to do huge numbers of housing starts and then not finish the building.
Ugh, it's not like venture investing when developers are not liable for the failure of the company. The law usually (don't know exactly about China) skews the balance in favour of property buyers.
> In most of the rest of the world, developers have to finance construction with their own money or a high-interest construction loan, then sell the completed building.
And the cost of that high-interest construction loan is paid by the future residents. Not something you want when your goal is to give most of the population cheap housing.
A very large number of Chinese citizens will lose their savings to these ponzi-esque construction schemes. Vast waves of defaults may take the banks with them. In Albania something similar caused mass civil unrest.
https://en.wikipedia.org/wiki/1997_Albanian_civil_unrest
Ponzi/pyramid schemes captured two thirds of Albania's population.
Well, every clever businessman will simply increase the prices in such a situation since more people can now afford to pay more. Problem solved *not*. Markets are self-calibrating.
This is an absolute nightmare. Hundreds of billions of dollars in liability. And somehow getting the funding to complete these works will not improve their financial standing because they already took all the money for it.
Not sure if this is some kind of joke. Many countries have laws that permit selling appartments when they are about 80% complete. Some have lower, some higher percentages.
Just your average low-tier negative CNN propaganda, I guess.
I assume it's similar in most countries
What I call loan is a similar arrangement to mortgage. Buyer pledges property as collateral, pays about 20% out of pocket, rest is a debt to be paid. Defaults result in loss of ownership of property. The agreements are tripartite. Builder gets paid from the loan taken out by buyer in tranches and builder reputation matters along with market value assessment and buyer's credit profile for obtaining a loan.
When in fact, it's fairly normal situation almost anywhere in the world.
That other countries mortgage unbuilt homes is more a "what about" rather than "facts needed for reader to understand."
And it's infamous for misrepresenting the other parts of the world to better suit USA's interests. Cases of outright lying and negative propaganda that they know is a lie abound.
Since most people buy homes with mortgages, most homes in the USA aren't bought before they are built.
Banks can and do refuse to pay until things are completed and city inspections pass the work. Could a city inspector collude with a bank and developer to rip off customers? Sure... but even if that happens it can only be small scale. The odds of the scheme collapsing increases exponentially with every additional city/bank/developer participating.
Politically China works differently. I'm sure there are plenty of developers doing good work. That clearly must be the case - not every building is a pile of garbage. But being a more centralized single-party state with state-owned banks the opportunities for shenanigans is obviously higher. It may also be driven by how much local budgets are influenced by new projects rather than ongoing property taxes. There is an incentive to approve projects and it is embarrassing to admit we should be tearing down the new building because everyone involved cut massive corners... that might also scare off new customers for the next project. Better to cover everything up and keep the scam going.
For that matter state owned banks from any country are well-known for perpetually extending loans rather than admitting the loan is garbage. This is not unique to China nor news to anyone.
You have to pay in full to the developer. By taking out a loan which consists of a downpayment.
The developer now has 100% of the money. And the buyer has nothing but debt.
The developers are either never breaking ground or never completing the building. Using the money to buy more land and sell more homes.
When they file for bankruptcy. The banks still need the money back from the buyer. Since the buyer has no home because it was never finished they effectively lose their investment and their lives as debt collection takes their cars, live-in home. Etc.
Stop spreading misinformation that buyers aren’t suffering. This is people’s lives at stake. Lying to people and pretending like nothing is wrong makes you a terrible human being when people’s lives are at stake.
I'm sure you have a good point about mortgages and developers and banks, but it's more important not to set the forum on fire, and that is what the site guidelines exist to avoid.
If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and taking the intended spirit of the site more to heart, we'd be grateful.
https://www.cnn.com/2021/10/14/business/evergrande-china-pro...
The exact quote is:
"[Then] there is the problem of unfinished projects, even if there is demand. The majority of new properties in China — about 90% — are sold before being completed, meaning that any setbacks for home builders could directly impact buyers, according to economists."
What is the problem with the paragraph? It describes a practice that is common in China but may not be known to CNN's audience. It mentions a pitfall of the practice, which is true and has played out many times, in China and elsewhere, easily verifiable. Nowhere does it say that it's a China only problem.
In fact, read the whole article before playing the victim. Not long. You'd be hard pressed to say it's more negative that a US-related economy news piece.
https://www.youtube.com/watch?v=K368l0yNxvs
https://www.youtube.com/watch?v=vhv424HlkGM
I don't know how it works in other countries but in France for new apartments you almost always buy them before or during construction, which allow new residents to settle in right after the construction has finished instead of waiting for months for the sale.
The way we deal with the incentive alignment is simply by having a justice system that makes sure contracts are actually enforceable and mandatory insurance policy for developers should anything bad happen to their company.
This happens in India also.
https://www.chathamhouse.org/2020/08/debunking-myth-debt-tra...
That one is from 2020 but there are a lot of serious people looking at these complex issues.
Then it is outdated.
The new information related to the belt and road project's failures has only started to come up in the last couple years.
I can understand why someone who doesn't have the updated information, based on recent economic data, would have a more nuanced view.
But we have the new information now.
Poor countries need a lot of investment (0). Historically many investments failed and creditors ruined the country and made live of the involved people even more miserable. My gut feeling is that chinese investors are a little bit smarter but there are obviously problems as well.
(another gut feeling: china has too much money, they can't invest in US treasuries anymore) (1)
This US/China conflict is just stupid. Nearly everybody looses.
(0) Adam Tooze "The west has failed to keep its promises on aid"
https://www.ft.com/content/75d35382-32e4-4548-82e6-0d20d9984...
(1) https://markets.businessinsider.com/news/bonds/dedollarizati...
I wonder if an alternate route would be to use aid money as subsidy to attract private investment. Juice the yield on bonds to too-compelling-to-ignore, or offer backfill on short-term revenues if the project is speculative, and you could attract the world's financiers.
On the other hand, perhaps there's a hostility to existing finance to begin with. A lot of the developing world has had bad experiences with the mainstream Western financial system-- their banks and associated institutions are the ones coming in and demanding austerity, privatizations, and currency manipulations to settle their debts. Perhaps China just represents a fresh face: all they need to do is squeeze a little less to look good by comparison.
You'd want to genuinely want improvement for the people. Not for enriching a new set of brutal and corrupt elites that will do the bidding of the CIA/IMF/whatever, but actually want the people's lives improved in living standards, education, economic independence, etc.
Kind of like how China fast-forwarded themselves. In rose tinted glasses, I can see the Belt and Road kinda being like that, but of course it left out the development of manufacturing / stealing of technology that really underpinned China's rise.
No sovereign nation should be borrowing from anywhere other than itself.
Instead firms should be selling equity denominated in the local currency for foreign currency - where they need foreign imported capital equipment. If nobody wants to invest on those terms then you have to build the equipment yourself.
For a nation to develop successfully it needs patient money, not hot money.
Loans are patient money. As long as the borrower pays as agreed then they can do as they please. Whether the original lender holds the asset to maturity or sells it on to another investor makes no difference.
Most of the high profile failures with foreign investment stem from corruption and incompetence. Switching from debt to equity won't cure that.
It could change who gets left holding the bag, though.
Presumably if Chinese firms held equity in the hydroelectric plants, they would care about whether they were built correctly and won't collapse. As it stands they get paid either way (according to the article).
That's not patient money then is it. That's money that requires regular service - mostly in a foreign currency.
Patient money gets paid as and when there is profit to service it.
I find it weird. Nobody would listen to me pontificating about how to design a microkernel and talking about "the problem with programmers".
Because if that country wants to sell their stuff to you, that would their only option - other than taking Rupiyah directly.
And if your country doesn't do it, then some other country will - because new sources of demand don't come by every day.
That's how you avoid a 'debt trap' and the debt prison that comes from countries not being able to go bankrupt.
And as Steve Keen regularly says you are better off studying System Dynamics than economics. It has more application to the real world.
Noah Smith isn't even an economist, he's just some know-it-all internet pundit who happened to have graduated in economics a decade ago.
From his own words[1]:
> Back in 2006, the original reason I thought of getting an econ PhD was actually to become an econ pundit and writer.
If anything, he's a former economist (until 2016) who's now a pundit discussing many topics going way beyond his academic expertise (hence my “know-it all” moniker above).
[1]: http://noahpinionblog.blogspot.com/2016/04/life-update-leavi...
Economists don't only study interest rate and banking?
The train station locations, however, are just non-sense. This is because they are too far, and for many stations, there is no "road" to connect to the city. Couple that with the retarded system they have to check-in which requires you to be in the station one hour before your train departs and suddenly a 40 minutes ride becomes a 2.5 hours ride. Might as well just use a regular bus?
In my opinion, the Chinese government is still living in the 80s (along with 80s technology). The Chinese economy (or parts of China) is living in a parallel reality with companies that are quite developed if not world-class. This means the Chinese government can "execute" quite advanced projects while being a peasant itself.
It's not clear what's sustaining the central government in China, or what's the level of discontent in the productive provinces.
[1] https://en.wikipedia.org/wiki/Railway_town
[2] https://pedestrianobservations.com/2017/09/07/meme-weeding-l...
>Shin-Yokohama Station opened on 1 October 1964, with the opening of the Tokaido Shinkansen.[4] At the time, the surrounding area was completely rural, and the site was selected as it was the intersection of the Tōkaidō Shinkansen tracks with the existing Yokohama Line
From https://en.wikipedia.org/wiki/Shin-Yokohama_Station
I am curious why you chose to write this in Chinese which most people here won't understand.
Might makes right or might is right is a closely related phrase, too.
I'm not sure if that makes sense for Laos, but for China it seemed to work pretty well.
Airports of course also have enormous 'processing' time. It's normal to arrive 2 hours early.
They built the terminus in far away place for cheap land costs and easy acquisition. Now the expectation is that there will be further developments over there including folks moving nearby. It'll be huge win for the train company since they can starts charging very high land rent compared to their purchasing price.
Poor quality construction work prevalent in mainland china. If you look for content with this keyword, you will find jaw dropping videos of constructions workers bending or breaking "rebar" with their hands, Owners chipping away concrete in high-rise buildings like its sand, etc.
Of course some of this can be propaganda, but considering it has a local name, there must be truth to it.
0: https://en.wikipedia.org/wiki/Tofu-dreg_project
There are crappy building practices in any country. The real question is prevalence, which I can’t seem to answer.
Damn, sounds like NYC this past week. Here's one of many videos:
https://x.com/OfficialWildX__/status/1707867092832378884?s=2...
I'm not totally sure I understood what tofu dregging was, but there's no shortage of low quality construction, collapsing bridges, unmaintained infrastructure, etc. in the US.
Confucianism does not lend itself well to crucial infrastructure , you know, things you don’t want to collapse.
https://www.chinaexpatsociety.com/culture/the-chabuduo-minds...
It’s an entire mindset.
https://en.wikipedia.org/wiki/Surfside_condominium_collapse
https://www.npr.org/2022/01/28/1076343656/pittsburgh-bridge-...
https://www.bbc.com/news/world-us-canada-61290444
https://www.bbc.com/news/world-asia-china-57830767
https://www.npr.org/2022/05/05/1096810346/survivor-found-alm...
https://www.bbc.co.uk/news/world-asia-china-66286576
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You simply cannot compare the two.
I could provide examples all day of how Chinese culture and the CCP allows this type of phenomenon to continue unabated.
It isn’t to say that there are serious infrastructure concerns in America that continue to go unaddressed.
But the scale of graft and shoddy construction in China beggars belief. It extends into every aspect of enterprise, taking shortcuts is the absolute cultural norm.
China pays for infrastructure to be built of the type and scale in countries that haven't seen this type of investment since their respective post-war expansionary periods, which most likely ended 60+ years ago. We Americans don't like it, because this represents moves towards the attempted changing of the guard, but we can't do anything but complain. At this point we can't invest in our own infrastructure, much less improve other countries'. But it feels like these infrastructure investments should have happened decades ago, and their net effects would have been to raise the standard of living of millions, or billions. Agreed that this plan seems to be winding down, unfortunately it doesn't seem to work.
It looks like China will actually pivot their economy to tech. Airplanes, computers, microchips, and soon, software...
If financing by providing loans is not investment, well, then we are saying that it's something like the article seems to imply, which is that you have to end up with an ownership stake in order for something to be an investment?
If you were buying government bonds, would you not consider that to be an investment?
Non-equity lending is definitely still investment, and is probably less predatory...
Specifically referring to this line of the parent comment:
>China pays for infrastructure to be built of the type and scale in countries
When in fact China did not just "pay for" these projects. And they are not "invested" in the prosperity of these people any more than the US was.
It's like rich people telling poor people to stop getting avocado toast in the US.
Given China's hostility, you would think europe and america would wake up and get past their moral high grounds but having someone to look down on is hell of a drug.
Starving and impoverished people don't want a lecture on democracy and human rights.
To me, the most terrifying thing is considering how much of this democracy and human rights I enjoy here is dependent on our economy and military being #1.
If you can disprove it then disprove it. Just asserting which conclusion to believe isn't going to work.