“European Project Trips China Builder”

That is the headline of this piece in the Wall Street Journal. An excerpt:

Chinese companies have wowed the world with superhighways, high-speed trains and snazzy airports, all built seemingly overnight. Yet a modest highway through Polish potato fields proved to be too much for one of China’s biggest builders […]

It remains unfinished nearly three years after contracts were awarded to Chinese builders. The Polish government is warning there will be detours around the highway’s “Chinese sections” when the soccer championships begin […]

The project raises questions about Beijing’s strategy of pitching state-directed construction firms as the low-cost solution to the world’s infrastructure needs […]

Covec [the state-run construction company responsible for the failures] was thin on management expertise, lacked financial skills and didn’t understand the importance of regulations and record-keeping in public works projects in the West, according to numerous people involved in the project […]

Organizing actual construction proved harder. To manage the project, Covec brought in Fu Tengxuan, a 49-year-old railway engineer, who spoke only Chinese and appeared to have little authority, telling colleagues that headquarters in Beijing needed to approve even the purchase of an office copier […]

Although the funding of Chinese projects in other areas such as Africa and Asia is often murky, analysts say that Beijing regularly foots the bill […]

All this hearsay about Chinese protectionism is for nothing. Even if a polity drops all of its trade barriers while its trading partner does not, the polity will benefit from more trade. What is often not pointed out is that the trading partner who does not drop all its trading barriers suffers because of it. There are many ways in which it suffers. In France, for example, protectionist policies in regards to cultural output like its movie industry has led to stagnation and an uncompetitive industry. In China, protectionist policies for construction firms has obviously affected the way these businesses can actually perform in a competitive (and more lucrative) industry.

Indeed, the WSJ goes on to report:

[…] the Polish government fired the Chinese builder. Covec executives were shocked. They said, ” ‘Oh my God, this isn’t possible,’ ” recalled Pawel Osowski, a Covec media adviser who was with them.

With Covec out, European builders were hired to finish the road, but at a higher price […]

Asked whether he would ever hire a Chinese construction company again, Mr. Witecki of GDDKiA said: “We have to build roads. We need trustworthy partners.”

Protectionism not only harms consumers everywhere, but it also harms the industries that have lobbied for protection. Though these protected markets might be able to dominate their home markets, their home markets are often hampered by the very protectionist policies that were created to protect them: less competition means lower-quality goods and services, and lower quality goods and services means lower GDP (PPP) per capita and less opportunities to expand their products to more people through global trade.

Another good way to look at at how protectionism works is to take a gander at South Korea. In the mid-1970’s South Korea had high protectionist tariffs and a GDP (PPP) per capita of about $2500. The industries that were protected did just fine in the home market, but abroad nobody had ever heard about companies like Samsung and Kia because the products of these companies were so bad. Once Seoul started to liberalize its economy by opening it up to world trade, the standards of living for South Koreans rose exponentially. Today, South Korea’s GDP (PPP) per capita is $31,000 and some its companies are world-renowned for their products.

Did some domestic industries lose out to world trade? Undoubtedly, but just look at the results of trade liberalization. By the way, South Korea still has protectionist trade barriers for its rice markets, and as a result South Koreans pay four times the amount that the average person in the world does for rice.

As I have previously stated, there is nothing to fear about China’s rise. If Beijing wants to keep trade barriers up to protect some of its domestic industries for political reasons, let it. The US will still benefit from lower trade barriers with its partners.

3 thoughts on ““European Project Trips China Builder”

Please keep it civil

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s