Neoliberalism ‘with Chinese Characteristics’

Cities have also become venues for frenzied real-estate develop-

ment and property speculation:

During the early to mid 1990s when a ‘casino mentality’ gripped the

country, banks and other 

financial institutions imprudently funded mas-

sive property developments throughout China. First class o

ffice spaces,

luxury villas, ostentatious town houses, and apartments sprang up over-

night, not only in major cities like Beijing, Shanghai, Shenzhen, but also

in many of the smaller provincial and coastal towns . . . The so-called

‘Shanghai bubble’ transformed this once drab city into one of the world’s

most glamorous metropolises. By the end of 1995, Shanghai boasted over

a thousand skyscrapers, some one hundred 

five-star hotels, about 13.5

million square feet of o

ffice space––five times the 2.7 million feet in

1994 –– and a ‘hot’ real estate market that was adding stock at a faster rate

than new York City . . . By late 1996 the bubble had burst, in large part

because of ine

fficient allocation of resources and overcapacity.

20

But the boom resumed even more vigorously in the late 1990s only

to be followed by rumours of overbuilding in key urban markets in

2004.

21

Behind much of this lay the 

financial role of China’s largely

state-owned banking system. This sector expanded rapidly after

1985. By 1993, for example, the number of branches of state banks

had risen ‘from 60,785 to 143,796 and the number of employees

increased from 973,355 to 1,893,957. During the same period

deposits increased from 427.3 billion yuan (US$51.6) to 2.3 trillion

yuan while total loans increased from 590.5 billion yuan to 2.6

trillion yuan.’

22

 By then the banks’ disbursements exceeded gov-

ernment budget expenditures by a factor of 

five. A lot of money

went to failing SOEs and the banks clearly ‘played a leading role in

creating “asset bubbles”, especially in the volatile real estate and

construction sectors’. Non-performing loans became a problem

and in the end the central government had to spend ‘almost as

much to clean up bad loans’ as the US did to rescue the savings

and loan industry in 1987 (the cost of that bail-out was ‘$123.8

billion in public funds and $29.1 billion in supplemental deposit

insurance premiums from 

financial institutions’). In 2003, for

example, China announced a complex transfer of $45 billion from

its foreign exchange reserves to two big government banks, and

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