More than half of Chinese infrastructure investments have “destroyed, not generated” economic value as the costs have been larger than the benefits, according to researchers at Oxford university, a finding that will fuel debate over the viability of China’s infrastructure-heavy growth model.
A fascinating article, and a reasonable proposition. Except for three things.
First, China remains short of infrastructure in key areas. A few examples: freight rail remains in desperate need of an upgrade; highways are groaning under the load of China’s car-crazy masses; and the power grid needs a switch to sustainable energy sources before coal chokes the country. As such, spending on new infrastructure per se is not necessarily misdirected.
Second, much of the infrastructure that has been built over the last thirty years is either worn out or was poorly built in the first place. The Chinese slang term “tofu construction” refers to just this phenomenon, and news reports offer discouragingly regular examples of underbuilt architecture.
Finally – and perhaps most important – most infrastructure (at least, the bits not made out of “tofu,”) is designed to last for a long time, often dozens of years. Any ROI calculation taken soon after completion is likely premature. By design, infrastructure should precede development, and is often the impetus of wider economic activity. Thus the effect of any given project on the wider economy is often impossible to gauge until long after construction.
Waste and graft permeate infrastructure development in China, and the government would do well to avoid dependence on infrastructure spending for growth. That said, more well-managed and thoughtful investment in infrastructure is needed, and will be for a long time.
And one last thought: better for reasons both economic and political that the government’s Keynesian spending goes into infrastructure that is ahead of its time than into military hardware and facilities.