Will the Beijing Olympics Trip Up the Global Economy?

by: David Riedel

China is preparing to host its big coming out party a year from now and they will stop at nothing to ensure that the Beijing Olympic Games are perfect in every way. The government is building impressive facilities, investing in infrastructure and overseeing a complete face-lift of Beijing. What impact might this flurry of activity have on the global economy? What are the risks as China heads into the final stretch of their sprint to clean themselves up and introduce themselves to the world?

On the environmental front, the government is committed to hosting a ‘Green Olympics’ with everything from solar powered showers in the Olympic Village and a fleet of electric buses for transportation to lithium-ion garbage trucks. The problem is that as athletes from around the world compete to break records and win medals, Beijing’s other reality may come settling down from above. Beijing’s horrific air position problems are exacerbated in the summer when Beijing is hot and humid and often windless. Images of Olympic athletes gasping for breath and of smog obscuring the skyline are not what China wants broadcast around the world from its big event.

The history of air quality in Beijing in August does not paint a hopeful picture for blue skies next summer. Looking at the government’s own statistics, the Pollution Index for Beijing has been over 100 an average of 7 days each August for the past 5 years. In 2002 August had 12 days over 100 including 2 days over 150. Anything over 100 is considered unhealthy and certainly not optimum for running a marathon!

In an attempt to improve air quality during the Games, the government is forcing polluting factories to move further from the capital, planning to ban excavation at the cities’ 3,000 construction sites and restricting vehicle traffic during the event. In the event that smog builds up as it can on windless days in the Chinese capital, the government is planning to mobilize ‘cloud-seeding’ missiles to generate air-cleansing rains. These moves are manageable and innocuous – to see the risk to the global economy we have to look further afield.

A recent report by scientists looking at the sources of air pollution in Beijing noted that sources such as coal-fired power plants and rural burning in nearby provinces of Hebei, Shandong, and Shanxi contribute significantly to air pollution in China. In fact, the models they developed indicated that even with no contribution from man-made sources of air pollution in Beijing air quality would likely be unhealthy. (‘Air Quality During the 2008 Beijing Olympic Games’, David Street et al, 19 Aug 2006)

The question is: ‘What is China willing to do to ensure a successful and impressive Olympic Games?’ – I would argue that they would do just about anything. Note that more than half of the budget for the There have already been reports of government discussions to close down factories in Central China for as much as two months before and during the Games to ensure clean air. Such a shutdown during a major period of manufacturing for Christmas season shipping as well as simply maintaining the flow of goods that make China the world's third-largest trading nation would be a serious hiccup to global economic growth.

While such an extensive shutdown is unlikely, the government is likely going to try something to moderate the level of polluting activity leading up to the Olympics.

In addition there are other realities of the Beijing Olympics that make them a dangerous development for the global economy. What happens after the construction boom leading up to the Olympics turns into a bust immediately thereafter? The Olympics are known for leaving in their wake impractical buildings and developments, tattered municipal finances and a notable pause in housing prices driven up in advance of the Games. In Atlanta, Sydney and Salt Lake City, history shows us that Olympic facilities are little used after the event. (People’s Daily Online, Feb 04 2005). As expected, the promise of a flood of visitors for the Olympics drives tremendous investment in hotels. According to Beijing Vice-Mayor Zhang Mao, the city will have 110,000 new or recently upgraded hotel rooms for the Olympics (New York City has 75,000). (People’s Daily Online, Feb 04 2005.) Beijing might feel a bit empty after the 550,000 foreign tourists and two million domestic tourists expected for the Games return home.

A return to more normal levels of demand for building materials, metals and energy after the Olympics are over could roil international markets. The real concern, however, is what the government decides to do to slow their economy and stock markets in the wake of the Olympics. The government has been unwilling to take moves to slow economic growth, which reached 11.9% GDP growth in the second quarter of 2007, the highest level in a decade, despite worrying signs of inflation and overheating have begun to show. The strength in the Chinese stock markets in Shanghai and Shenzhen since mid-2006 have also worried the authorities. While the government has wanted to ensure continued growth leading up to the Olympics, there will be nothing standing in their way of a significant adjustment to economic and stock market growth when they are over.

Economic pressures will likely continue to build in the coming quarters as the government feverishly builds to accommodate the Olympics and manufacturers rush to produce and build inventories ahead of a feared shutdown. The closing ceremonies of the Games on the 24th of August 2008 could witness a global pause as the engine of growth that China has provided takes a much-needed rest after running its marathon.

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