Many times the US goes to China and Russia complaining about human rights issues, blaming China for not having social programs for the poor, unemployed, etc... In effect, to a large extent, China uses the private charities and Religious charities to take care of the populous needs, because they realize that to use money for non-productive and counter-productive purposes drains the wealth they are trying to foster for the country and its citizens. This sounds like an Adams, Jefferson and Franklin concept for how the poor should be covered, versus being supported by the State! Prime Minister Wen of China and Prime Minister Putin of Russia both lambasted Obama, when the US Stimulus was proposed, as draining the wealth of the nation – the path of Socialism.
What China does is that they both borrow and print cash for their stimulus. The cash is printed as an offset to deflation, because deflation drives down the monetary or paper value on the books of banks creating a paper loss, where there is actually a real value gain. This means that for the US, as Russia and China, there needs to be some printing and spending of electronic cash to offset the deflationary effect on the assets of banks. This was postulated as a necessity for the same reason by Keynes, but where he got it wrong, and China, Singapore and Russia right, is that Keynes proposed that the funds be used to put people on the dole, the New Deal, Great Society, Obama’s Hope and Change to Fundamental Transformation – the New Normal, etc., use for anything at all, not realizing that such spending without a productive means to repay, versus draining the populous through taxes and borrowing, will deplete the wealth created by the people.
So, here’s what they do in China: (see Sun Yat-sen to understand China’s socio-economic-political process)
They select an area, for example, Shanghai, where in 1998 they commandeered by eminent domain 3 sq. km of land upon which there were 2 story old brown and black wooden hovels for poor workers in Shanghai that had been there for 200 years or more. They built a suburban town just on the outskirts of Shanghai with condos, shops, etc, including mass transit above and below ground back into the city. Then moved the entire population of that area to the township. Then they master planned the entire area to be converted into commercial lots for long term lease, upon which would be built ultra modern skyscrapers of 40 to 60 stories, and contracted their Private Sector construction companies, some government owned, to build a modern infrastructure of water supply systems, sewage treatment, electrical supply, roadways, etc..
Within 3 years the area had been demolished and converted into commercial lots having a value several times the cost of construction. This value was then leased to the Private Sector for 50 years, who proceeded to build horizontally and vertically the entire 3 sq.km. within that 3 years of condos, apartment buildings, office space, retail, commercial, medical, etc., which, moreover, had been completely leased up and sold out within that period to the Private Sector, generating an enormous multiplier of jobs beyond those that lived in the hovels, who now lived in quality modern space with modern transport back into the city to work. I know this story first hand, as I went to Shanghai in 1998 looking for investment opportunity and was told that of this plan and returned again in 2001 to see what space might be available for purchase or rent, only to discover that I had been too slow both times in taking advantage of the opportunity. Meanwhile, since then, the government continues to collect a high rate for leasing the infrastructure it created on the 3 sq.km., while the Private Sector continues to convert the debt from the build out into equity, demand continues to drive up rents, property and wages in real terms.
When the US complains that China has to create a welfare fund and food stamp program and unemployment benefits as part of “human rights” for the non-productive, what China does instead is create another ultra modern master planned city and instead of putting people on the “human rights” dole, as demanded by US Progressives trying to get China back to Socialism, the Chinese government tell all the unemployed people that want to work to show up at that next city.
China started with mostly the border cities on their water front and have been moving systematically to the cities throughout China, each time taking underutilized land and converting it into valuable land at a fraction of the cost of the conversion, based on real construction contracts with mostly Private Sector contractors, then letting the Private Sector build ultra modern sky scrapers, as happened in Shanghai. China leads Asia in the construction of Platinum LEEDs skyscrapers. Super highways, toll ways, high speed passenger and cargo railways, water and sewage systems, all to a large extent designed by Western architects and design engineers, leave in their wake an enormous expansion of jobs, for which there are a multitude of job training programs, everything pay as you go, leading to greater salaries based on real productivity.
More than 50% of the entire development in China is for construction. Western economists say that they have no way to repay it and a bubble is forming, but in reality the present value of these converted land leases, enable China, without taxation, to generate astronomical long term income, which, because they rejected the US call for worldwide hold to maturity accounting in the Private Sector, represents an overall value increase to both the people as a whole and to developers. And with low level “Laffer Curve (1)” taxation of workers generating exponential taxes. They practice the same with government investments into Private Sector R&D, where whatever is created is then eased, licensed or sold to the Private Sector, providing, yet again an underlying value to the Chinese people, and those international interests able to invest.
Their idea is not to stifle wealth, but rather maximize revenues to both the government ADD the Private Sector, recognizing that the Private Sector is the Goose that lays the Golden Egg, not government. These are the same concepts as Hong Kong and Singapore have developed to make these island States so enormously wealthy and unrelentingly productive, but now applied to a vast land mass having a population of 1.3 billion. (As government owns all land, it is leased out.)