DeWeaver, who worked in China for eight years and is co-manager of a hedge fund investing in Asia, says China's economy is subject to boom-and-bust cycles and that the time is nearing for a down cycle. DeWeaver says local government officials in China are rewarded with promotions based on economic growth in their provinces or cantons. As a result, he says, China has overbuilt its infrastructure in many regions. DeWeaver, in his recent book, Animal Spirits with Chinese Characteristics: Investment Booms and Busts in the World's Emerging Economic Giant, documents flaws in the Chinese economy, which could have repercussions for investors worldwide.
For example, DeWeaver says 25% of Chinese wind-power capacity is not connected to the grid. Why? Because, he says, the Chinese built wind farms in recent years in the windiest areas of the country without regard to whether electric power would actually be needed there. Consequently, the wind turbines go unused, deteriorating fast because they are frequently sandblasted by wind storms. Similarly, DeWeaver says, new airports were built by local officials without regard to whether air traffic justified their construction. Consequently, large airports operate for years and lose money or get closed because they become to expensive to maintain.
DeWeaver says that while “bridges to nowhere” get built in the U.S. the magnitude of boondoggles in China is much greater. He says provincial officials in China have built amusement parks, factories and other projects with little or no economic justification and that paying the debt on these projects and continuing to operate them unproditably is likely to hamper economic growth in China for many years.
DeWeaver predicts that the Chinese government could face growing domestic unrest if the economy sinks into the long period of sub-par growth. He says the Chinese will likely divert attention from the poor economy by pointing to problems with the West or neighboring nations.
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