China’s Gross Domestic Product, the measure of all goods and services combined, has dropped from 10.3% in 2010, to 7.6% today. That GDP is still much higher than most industrialized nations, however, the fact that the world’s second-largest economy has slumped by 3.3% has created serious concern for the whole global economy.
In my last two blog posts (linked below), I discussed some of the problems that China has from a macro-economic—or government—standpoint. This post, however, approaches how Chinese corporations do business, citing two dismal failures—one in the Caribbean and the other in South America. They are discussed in the linked article from the Miami Herald: http://www.miamiherald.com/news/nation-world/world/article42280230.html.
Several years ago, a Chinese corporation began construction on what was to be the ultra-chic Bahia Maria Resort on a prime beachfront property in Nassau, Bahamas. The $3.5 billion project was designed to build four world-class luxury hotels, and include 40 restaurants. In fact, it was expected to open last March. So far, it is 97% complete; however, it now has a chain-linked fence around it, and the 2,000 employees have been laid-off. The developer is reportedly to currently be deciding between filing for bankruptcy or hoping for a “white knight” to buy the resort project for (perhaps) fifty cents on the dollar.
Local Nassau business people are concerned that, the longer that the project remains unfinished and unmaintained, it will fall further into disrepair, and become an even bigger blight on the local prime beachfront area. Dionisio D’Aguilar, a former member of the Bahia Mar Board said that: “Everybody is finding out what we already knew: That dealing with a Chinese bank that is state-owned, government-controlled, is not an easy undertaking.”
Over in South America, the Hong Kong Nicaragua Canal Development Group was awarded the rights to construct and develop a wider and deeper alternative to the Panama Canal, with an agreement to manage it for 50 years. The Chairman of the HKND, Mr. Wang Jing runs a number of different corporations; however, it appears that his main focus is the (Beijing) Xinwei Telecom Enterprise Group. Several government-owned Chinese Corporations are among the project’s partners.
Although the funding for the Canal Project, as well as construction, was to have begun in 2015, neither have happened, as I write this in early 2016. The whole $50 billion Nicaragua Canal Project was kept hush-hush, and there were a number of very serious environmental concerns expressed. But, the President of Nicaragua, Daniel Ortega, generally doesn’t ask anyone for permission.
Additionally, due to the market gyrations in the Chinese stock market back in August, Mr. Wang’s Net Worth appears to have dropped, from $10 billion to $3 billion, and maybe even more over the past couple of weeks. Currently, this canal project also seems dead in the water, perhaps for lack of funding, as well as lack of conviction. Its important to know that the development group was only formed in 2012.
Although the government of China claims to have no involvement with the operation and ownership of most Chinese corporations, it seems that it has created the environment in which many have been formed. Most Chinese overseas projects appear to be government-financed, and the key owners seem to have close ties to the Elites within the Communist Central Party. Without government connections, how else would someone like Mr. Wang have control of some twenty different corporations, and within so many different industries?
Now, perhaps with the millions of dollars that were floating around in China, when these projects were concocted, basic economic principals and common sense were not considered. But, here are a few questions that I would like to ask:
Nassau Bahia Mar Resort: Was any consideration given to the weak economies in the assumed target tourist market, Europe and the Americas? How about the extremely high construction costs in the Bahamas, since all building supplies and materials must be shipped-in from the Mainland? How about the impact of water and sewage requirements? And, wouldn’t the lender(s) have inquired as to what the alternative repayment plans were, if the project wasn’t completed properly—and on time?
Nicaragua Canal Project: Since construction hadn’t begun, there is no eulogy to give; but, had consideration been given regarding: the displacement of whole villages; building in the jungles; the expense of carting removed soil away or extreme environmental problems? Lastly, was an analysis performed as to why building a 173 mile (245 km) canal would be cost-effective, when the nearby and soon-to-be widened and deepened Panama Canal runs just 48 miles (78 km)? And that competitor has been in successful operation for 100 years.
NOTE: These are the last two blog posts, which discuss China’s situation from a macro-economic—or government—perspective: