How Tech Unicorns Are Just Like China's “Ghost Cities”

Authored by Jesse Colombo via RealInvestmentAdvice.com,

Since the Great Recession, there has been an explosion of interest and activity in the tech startup arena. Tens of thousands of tech startups have been founded in recent years and there are now over three hundred new “unicorn” startups that have valuations of $1 billion or more. The startup gold rush began as countless entrepreneurs attempted to follow in the footsteps of Facebook founder Mark Zuckerberg and the “Google Guys,” Larry Page and Sergey Brin. Unfortunately, the majority of today startups – including today’s hottest unicorns – are burning copious amounts of cash. In this piece, I will make the case that today’s startup phenomenon is very similar to China’s construction of countless empty “ghost cities” for the purpose of creating jobs and economic growth.

Though the U.S. was the epicenter of the Global Financial Crisis of 2008 and 2009, China’s economy was still strongly affected as well. After all, China’s largest export market – the U.S. – had just succumbed to a powerful recession. In an attempt to cushion the economy and create growth again, China’s government announced a RMB¥ 4 trillion (US$586 billion) stimulus package and helped to encourage an aggressive debt binge. A good portion of this stimulus package and debt binge was used to build massive infrastructure projects, extravagant government buildings, and entire cities throughout the country.

A very high proportion of China’s construction projects over the past decade were basically make-work projects that were undertaken for the purpose of creating jobs and GDP growth, despite the fact that they are typically wasteful and inefficient. Make-work

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