A window into China’s economy

3:00 AM— jet lag.  3:30am, now I’m trying to compose three posts in my head.  4:00am, I get up and start in on The Book of Disquiet, full of short essays, observations, maxims.  I can’t help thinking Pessoa would have been a great blogger, if he hadn’t died in 1935.   I’ve got to stop thinking about blogging.

Several commenters asked for my impressions of China.  I need to be careful because there is both an English language and a Chinese language version of my blog.  I’ve found that Westerners like to hear about what is different about a country, especially the “old ways.”  Like the swarms of bicycles and even the occasional donkey cart you used to see on Beijing streets.  Chinese prefer to emphasize the modern aspects of their country, associating the old ways with poverty and backwardness.  So I’ll try to appeal to both audiences by discussing housing, which was pretty primitive when I first visited in 1994, but is improving very rapidly.  I’ll focus on windows.

When I first visited in 1994 my inlaws had an apartment in a 4 story building that was very primitive by Western standards.  Right outside there were big piles of coal and a rail line.  Everything was just bare gray cement.  Indeed the whole city seemed gray to me.  The interior was small and very plain, and had a tiny and very primitive kitchen and bath.  And they were college professors living on a college campus in the nation’s capital.  When I say ‘campus’ don’t think of Wellesley College.

And yet even that apartment was better than what my wife grew up in.  In the 1970s the entire family of 4 lived in just one room.  The kitchen and toilet were shared with another family.  A family of mean people.  And when I say ‘toilet’ I don’t mean “bathroom.”  Baths were communal.  In 2006 I read an article in a Chinese paper that said the average size of an urban apartment had increased from about 85 square feet in 1980 to 275 square feet in 2005.  That’s an indication of rapid progress, but also shows how talk of a housing bubble in China is premature.  For a long time any housing built will be “needed” in the commonsense meaning of the term.

By the time of my 1996 visit my inlaws had moved into a new high rise building.  They lived on the 16th floor.  The elevator didn’t always work, and thus they sometimes had to walk up 16 flights of stairs with groceries.  The quality of the building was much better than the old one, almost as good as one of those high rise public housing projects on the south side of Chicago.   In other words, it was still pretty bad (but with much less crime than Chicago.)  This apartment had three small bedrooms, and the kitchen and bath were still small and primitive, but a bit better.  The windows of almost all Beijing apartments in the 1990s were small, rickety, draughty, ugly metal things with lots of small panes of glass that didn’t provide much insulation.

When I returned in 2001 a lot had changed.  They were in the same building, but their apartment had been remodeled.  And not just their apartment, but about half the apartments in the building.  How could I estimate this?  From the windows.  They were white vinyl replacement windows, usually a pair, each having dimensions roughly 18 inches wide and 3 or 4 feet high.  They now had screens (which helps as there are lots of mosquitoes) and they slid easily.  When you saw these you knew the inside of an apartment had been remodeled, probably with a lot wood paneling added to the bare concrete walls.  Why did this happen?  Economic reforms.  The residents were no longer simply renters (they used to pay about 50 cents a month), but now had a bit of an ownership stake in their units.  This economic reform unleashed a massive remodeling boom all over the country. 

When I arrived a couple days ago I saw the biggest changes yet.  My mother-in-law had just moved into a new apartment of 1350 square feet on the 8th floor of a new building on the same campus.  Now the fit and finish of the interior is very good, comparable to new Western  highrise apartments.  In China even middle class apartments are bought as bare unfinished units, and you pay for all the interior fittings including kitchen and baths.  The windows are far better than the vinyl replacement windows in the previous unit.  They are vaguely Palladian, but with no semicircle on top (actually more similar to the windows in Chicago’s Carson Pirie Scott, for you architecture buffs.)  There is a six foot by six foot plate glass window (double paned), flanked by two smaller vertical windows that open.  The framing is a handsome coffee-colored dark brown aluminum, which looks very high quality.

Unlike the exterior walls of her previous high rise building, which were flat walls of bare cement with flaking lime green paint, the new building has a handsome exterior.  The massing is rhythmic and the surfaces are various shades of gray brick.  In the old high rise there were lots of bicycles on the outside, and a few cars.  The ground was packed earth, and dusty in the summer.  I wondered where people were going to put all their cars as China boomed.  The new complex has a very attractive greenery between the buildings, and ramps leading to underground parking lots. 

I should explain that college campuses here are like big gated communities, with soldiers guarding the entrances.  So you might have a square kilometer with no through streets.  Indeed most of Beijing is laid out this way.  Visitors may wonder why the traffic is so bad on the huge through streets, in a city where car ownership is still far below Western levels.  The reason is that those big streets are practically the only through streets.  Even though these avenues are grand, like in other East Asian cities the percentage of the surface area covered with roads is much smaller than in Western cities.

I haven’t got out much yet, but in the past I noticed that Chinese styles seem more uniform than in the West (although that may simply reflect my perspective.)  Thus I expect the windows I see here to be repeated in millions of other new apartments all over the country.  This is just one slice of Chinese society, but it reflects what is going on in many other areas.  Indeed the Beijing airports exactly reflect the housing changes I observed with my mother-in-law.  In 1994 I arrived in a small, crowded, and very spartan terminal.  By 1996 there was a new and much bigger airport.  It seemed like a dream come true—no more long lines, no more chaos.  But by 2006 even the new airport was full of long lines and crowds of people.  This time I arrived into a beautiful new terminal, the world’s largest, with no crowds or lines.  Since 1994 I’ve seen three generations of housing, and three generations of airports.  In housing the new units have caught up to those in the West, and the new airports even exceed ours.

When Westerners think of the Chinese economy they picture shoe factories in Guangdong province, with lots of migrant workers.  But the whole point of development is not production; it is living standards.  The most important component of living standards (once you have enough to eat) is housing.  I see the changes in China’s housing as the most important aspect of their development to date (next to the 1980s farming reforms that ended mass hunger.)  Wealth allows you to buy privacy, to get away from people you don’t like.


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13 Responses to “A window into China’s economy”

  1. Gravatar of rob rob
    17. August 2009 at 20:15

    Do you believe a malinvestment can be spotted by an observer at street level, without looking at a balance sheet? I’ve always wondered this.

  2. Gravatar of Lorenzo (from downunder) Lorenzo (from downunder)
    17. August 2009 at 23:56

    Rob

    Yes, as any visitor to the Soviet Union or post-Soviet Russia can tell you. Sagging balconies, rusted and sagging side fences on roads …

    But, of course, that is more a manifestation of the economic calculation problem than malinvestment a la Austrian business cycle theory.

  3. Gravatar of David Ortmeyer David Ortmeyer
    18. August 2009 at 03:27

    I’m really enjoying your descriptions of changes you’ve noticed in China. Thanks.

  4. Gravatar of Current Current
    18. August 2009 at 04:35

    Lorenzo, yes, different things.

    Scott, Lord Macaulay used to write things like this about development of housing. He was derided as a bourgoisie yokel (which he was in some ways) for focusing on what his critics considered superficiality. I expect this will happen to you one day. (When it does perhaps dust off and dig out Macaulay’s replies, they’re very funny.)

  5. Gravatar of JeffreyY JeffreyY
    18. August 2009 at 11:44

    “I noticed that Chinese styles seem more uniform than in the West”

    I’m on my first trip to Israel right now, and I’ve noticed the same thing here, at least with regard to non-ancient buildings. Having read Jane Jacobs’ work, I’m guessing it has to do with the times the buildings were built. In the U.S., every major city has been built over the course of 100 years or more. In Israel, the major cities have been built at most over the last 60 years, and often over the last 10-20. In China, I’d guess the time scales are even more compressed for buildings being remodeled with new wealth. There just hasn’t been enough time for fashions to change between nearby buildings. It needn’t be anything fundamentally different between the cultures.

    Or I could be totally wrong. :)

  6. Gravatar of Jake McCloskey Jake McCloskey
    18. August 2009 at 12:48

    I wonder if you could comment on the washing and drying of clothes. When I was in Shanghai, most residential buildings were covered in clothing hanging outside windows to dry. Do most people still do laundry by hand in Beijing?

  7. Gravatar of Sitting Bull Sitting Bull
    18. August 2009 at 15:58

    Jake McCloskey,

    “I wonder if you could comment on the washing and drying of clothes. When I was in Shanghai, most residential buildings were covered in clothing hanging outside windows to dry. Do most people still do laundry by hand in Beijing?”

    I don’t know about China, but I was in Seoul, Korea this summer and it seemed that people don’t really use drying machines in Korea, despite everyone having and using washing machines that seemed like 20 years ahead of ours in the US. A lot of other appliances and electronics were like this as well. I suspect it could be more of a cultural thing in Korea. For China, I’m not sure, but I imagine energy costs, appliance prices, etc. are the driving factor.

  8. Gravatar of Sitting Bull Sitting Bull
    18. August 2009 at 16:25

    Scott, I really enjoyed this description of China’s rapid change. It must be great to witness first hand what will surely be regarded in the future as a tremendously important historical process/event. Kind of like 19th century Britain during the Industrial Revolution I suppose.

    Have you traveled to Shanghai enough to notice the changes there? And is the Shanghai:New York, Beijing:D.C. analogy an appropriate one?

  9. Gravatar of ssumner ssumner
    19. August 2009 at 01:44

    rob and Lorenzo,

    Some malinvestment is reflected in low quality, other in high quality produced in overabundance (as with the US subprime markets.) Keep in mind that in developing countries the “optimal” quality may be lower than in the rich world. I’ve never been to Russia, but from what I’ve heard the quality was too low, even given the per capita income there. I know less about the post communist era.

    David and Current, Thanks.

    Jeffrey, That may be part of it, and also in China it may partly reflect the heavy role of the state. Or, it may be perspective. Perhaps to people from Asia all the American wooden houses look very similar.

    Jake and Sitting Bull,

    Yes, in China people seem to have washing machines but not many dryers. You see the clothes hanging out to dry quite often.

    Sitting Bull, Yes the change is really fascinating. I imagine New York was like this in the 1920s when all those art deco office buildings and apartment buildings were going up at a very fast rate.

    Shanghai does seem to be the New York of China. I was just there once, in 2001. I’m sure it’s changed an enormous amount since then. Beijing is much bigger than DC, and it’s economy still has a lot of industry. However the heavy industry is being moved out for environmental reasons.

    These two cities look very different in many ways. I’ll try to talk more about it in another post.

  10. Gravatar of StatsGuy StatsGuy
    19. August 2009 at 06:00

    Just in case you are missing the US, Henry blodget writes:

    “…there is the fact that our government did not make the same boneheaded mistakes that plunged the country into the Great Depression–such as tightening the money supply (ours has been kept extremely loose). The absence of these mistakes, not Big Government, may be the real savior here.”

    http://finance.yahoo.com/tech-ticker/article/304990/Did-Big-Government-Save-Us-From-A-Second-Great-Depression

    :)

    Your prose is a pleasure to read, btw.

  11. Gravatar of ssumner ssumner
    20. August 2009 at 01:27

    Thanks Statsguy, Your comments are thoughtful as well. My counter to Krugman’s argument is that he has the wrong ceteris paribus. The fact is that no central bank; not the Fed, not the ECB, and not even the BOJ, would allow NGDP to fall in half. They were all too timid last year, but we were near the outer limit of what they would have allowed before going full blast with unconventional moentary stimulus. Since I preferred that policy anyway (as should any smart liberal who cares about the budget deficit (hint)) I was not so enamored by the approach we did take. But I understand my argument isn’t an easy sell, it requires people accept that unconventional monetary policy can work, and also that I read the politics of central banking correctly. So I don’t blame people if they don’t 100% buy my argument.

  12. Gravatar of Brian Brian
    31. August 2009 at 07:28

    Here in Hong Kong, many Chinese prefer to dry their clothes outside rather than use dryers. I can’t understand why: between the humidity and the pollution, drying clothes outside seems crazy, but Chinese companions claim that drying outside is more natural, and their clothes smell and feel better.

    -Brian M

  13. Gravatar of ssumner ssumner
    2. September 2009 at 15:16

    Brian, That’s interesting. But my wife (who is Chinese) has never heard that theory–so I don’t know how widespread it is.

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