Economist: The Story of China’s Economy as Told Through the World’s Biggest Building: The Global Centre: "The world’s biggest building got off to a bad start. On the eve of its opening, Deng Hong, the man who built the mall-and-office complex, disappeared... swept up in a corruption investigation just before the building’s doors opened in 2013. The media focus shifted to his hubris and his wasteful, pharaonic venture. Inside, it had a massive waterpark with an artificial beach, an ice rink, a 15-screen cinema, a 1,000-room hotel, offices galore, two supersized malls and its own fire brigade, but just a smattering of businesses and shoppers. It became a parable for the economy’s excesses and over-reliance on debt. Today, more than five years on, the story has taken a series of surprising turns. For one, the building is not a disaster. During the summer, the waterpark is crowded. The mall has come to life, a testament to the rise of the middle class. The offices are a cauldron of activity: 30,000 people work there in every industry imaginable, from app design to veterinary care. Mr Deng has been released and is back in business, declaring last summer that he had a clean slate...

...A triumphant return? Not quite. Mr Deng’s freedom is marred by the fact that he no longer owns the centre but is now an employee.... The Global Centre... is neither a spectacular success nor a catastrophic failure but a long economic struggle, a contest between China’s tremendous potential and the cracks in its foundations. America is only a secondary player in the drama. China, for better and for worse, is writing its own story.... In the 1990s that China settled on a model that has, in many respects, persisted to this day. It started evaluating local officials by how quickly the economy grew under their watch. They, in turn, competed with each other to woo firms, offering them cheap land, tax breaks and low-cost labour. Transforming the bureaucracy into something more like a large startup business, hungry to expand, yielded dramatic results. China accounted for 4% of the global economy in 1990; now that is close to 18%.

Three factors have underpinned this model. Each can be found in the origins of the Global Centre. The first is land, all of which is publicly owned. This puts a valuable asset at the disposal of local officials....A second feature of China’s economy is cronyism. Mr Deng bought the land in 2008 at a steep discount, according to state media.... The third feature in China’s model is debt (see chart). Mr Deng bought the land in 2008 just as the country embarked on a manic phase of growth. Worried about drag from the global financial crisis, Beijing unleashed a huge stimulus. Local officials ran up debts, and seized lots of land for development. A building boom ensued. The Global Centre is one of the many projects from that period that dot the country. Some are useful, such as China’s high-speed rail network. Others, less so: scores of cities built big futuristic districts but are still struggling to attract residents. ...

The challenge now is to shift to a different economic model, because all three factors are hitting their limits. Land is a finite resource, and the government’s appropriations have got ahead of market need.... Corruption has reached corrosive levels. Frailties from all the debt are showing.... But turning onto a new path is hard.... China’s problems are simple enough to diagnose. Treatment, though, is painful, and the disease more chronic than acute. So instead of taking bitter medicine, officials hope time will be a balm. But China’s ills are likely to get harder to cure....

China has done well at building first-rate ports, highways and railways. But promoting innovation is harder. Patents filed by Chinese companies, for instance, are not all they seem.... Government subsidies also have shortcomings.... This is not to say that China is failing. Judging by growth or innovation, it has excelled compared with most other countries at its income level. But it still has far to go. Despite the name of its plan to develop advanced industries—“Made in China 2025”—which has caused so much concern in America, the bureaucrats who drew up the plan did not think that China could rival foreign prowess until 2049. That is cold comfort for firms whose technology has been stolen. But it is an indication of where China stands: its rise will be measured in decades, not years....

Mr Deng is back. He is working for the Yunnan group, tasked with helping it make a success of his buildings, including the Global Centre. A little more than five years after it opened, he can take some pride in it. Millions of people have come through its doors. But he still has a challenge on his hands. To retain a shareholding in his projects, he has promised to deliver nearly $1bn in profits from 2018 to 2020, ten times more than over the previous three years—a nearly impossible task. Problems are also showing up. The waterpark now closes for half the year, because it is too costly to run in the winter when crowds are sparse. Doors have started to fail on some of the 200 lifts. Rainwater drips through the roof. This is one more way in which the Global Centre reflects the Chinese economy. Glittering from afar, the structure looks shabbier and less solid up close, and is sorely in need of renovation...


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