Production continues at all costs.
A common complaint around these parts is China’s export-based economy is based on smoke and mirrors – that the country’s government will pull out all of the stops to keep its factories humming, its citizens employed, and domestic turmoil in check.
That certainly looks to be the case again, as the leaders of the world’s most populous nation and the world’s second largest economy pump money into its own stock market and cracking down in an effort to shore up market confidence.
China has been admonished for years for the lethargic pace it has taken in moving its economy toward one based on consumption and honest-to-god market forces. Treasury Department officials wring hands over this on the regular. But who are we kidding? It’s hard to get a handle on what this planned economy actually looks like from the other side of the ocean.
Enter this legit New York Times article that takes a look at one of the side effects of all that central planning: Zombie factories. They should be dead. No one wants their stuff. But they make stuff anyway, and sell it on the cheap. Zombies! From the article:
Miao Leijie loses money on each ton of cement his company produces. But stopping production is not an option.
When the plant opened in 2011 to supply the real estate and infrastructure industries in the northern Chinese city of Changzhi, the company raised most of the initial money from banks. Now, Mr. Miao, the factory’s general director, needs to keep churning out cement simply so the company can pay the interest on its loans.
It will be tough for the business, Lucheng Zhuoyue Cement Plant, to get out of the hole. Customers and investments are drying up, and the company is borrowing even more money to stay afloat.
“If we ceased production, the losses would be crushing,” Mr. Miao said, as he chain-smoked in the company’s quiet, spartan office. “We are working for the bank.”
Working for the ol' bank. Look, it’s not an easy thing to be a Chinese factory worker in an industry going to mothballs. But here’s the rub: While China may order another round of infrastructure spending to take the pressure off its own economy, America is only encouraging bad behavior and helping to compound China’s problem by gobbling up its artificially cheap industrial output (a $343 billion trade deficit in 2014 alone!).