In 2008, when the Chinese leadership were seriously afraid that the global economic crisis could significantly decrease the Chinese economic growth, they embarked on a range of measures to stimulate the economy. In the end, the main way these measures seem to have worked is through launching a construction boom which had no precedent in human history and perhaps will never be repeated again.
Already in 2011, The Economist Intelligence Unit in the report titled “Building Rome in a Day…” was alarmed by the scale of the boom. According to the report’s calculation, at the end of 2010, China had the urban population of just 44.9%, yet it already had the residential space per head approaching that of the UK. The UK then had the level of urbanization of around 90% and the average disposable income level many times higher than China. Since then, the construction boom has continued for 4 more years. The potential magnitude of over-construction that this (as well as evidence like enormous ghost cities) suggests is simply beyond comprehension.
Looking at the chart above, one can notice that the growth rate in Chinese construction spending was falling rapidly after around 2006. Then there was a turnaround starting from 2008 which was probably fuelled by stimulus measures even before the main stimulus package was announced. Indeed, the index of the Chinese monetary policy stance estimated by Sun (2014) suggests dramatic loosening of the monetary policy stance in early 2008 that continued until early 2009. Then, monetary policy was loosened substantially again in 2011.
And it wasn’t just the China’s central bank’s loosening. As an example, in just the first six months of 2009 the big four Chinese state banks were ordered to lend the equivalent of 700 billion pounds.
The main problem with this boom is that it means a waste of important resources on an enormous scale. In this post I will just deal with steel the importance of which for multiple production processes does not need to be explained (but there were of course other resources wasted on an astronomical scale, for instance cement and copper). The chart below illustrates the dynamics of steel production in the world, China and the US. The chart is based on the World Steel Association’s data.
It is notable that in 2014 China produced almost as much steel as the whole world in 2001, and half of the world’s total for 2014. Since the net steel imports have been relatively low (the highest share was around 9% (74 mln. mt) in 2014). If we reasonably hypothesize that at least the increase in the amount of steel produced after 2008 over the 2008 level was wasted in the stimulus (but perhaps it has been even higher), the resulting picture is staggering. If one also recalls that the construction boom meant colossal wasting of other resources like copper, cement, as well as many others, the title of this post ceases to be controversial. It is impossible to say at this stage how many people all over the world were and will be made substantially poorer because of this but this number is obviously very large.