Did China Make a Mistake Putting Unemployed Workers to Work?

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Friday, 18 June 2010 05:16

The Post apparently thinks so. It told readers that a year and a half after China initiated a massive infrastructure focused stimulus program that kept its economy growing at near double-digit rates:

"many economists and others here are asking pointed questions: Does China really need all this infrastructure? And what's going to happen when the bills come due?"

Let's think about this one for a moment. China built or rebuilt roads, bridges, railroads, schools, hospitals and other public buildings all over the country. Were some of these projects wasteful -- absolutely. China's economic managers are surely very competent, but when you spend $800 billion quickly, you can be certain that a significant amount of money will be wasted.

So, what was the cost? Well, if only we had smart, prudent, deficit hawk types running things in China, the people who worked on these projects could have been unemployed. The Chinese really lost an opportunity by not listening to those deficit hawk types.

And, what about when the bill comes due? After all, China only has a couple of trillion dollars in foreign exchange reserves and a current account surplus of more than 6 percent of GDP (this would be more than $900 billion annually in the U.S.). With economy growing just 9-10 percent a year, they must be terrified about the looming debt crisis. Arghhhhhhhh!