Categories
Sunday Papers

The Sunday Paper – Rail, Rivers, Road or Air: Which Infrastructure Promotes Growth in China?

Hongchang Li, appropriately from the Beijing Jiaotong (交通, traffic) University (et. al.), wanted the answer to a simple question; is money spent in China on transportation infrastructure money well spent? For the purposes of the research ‘well spent’ was defined as investment that led to a rise in local GDP i.e. what ‘bang’ is being achieved for China’s infrastructure spending bucks?

Ten years ago China spent 40% of the G7 aggregate budget on infrastructure, but by 2017 this had grown to 2.5x. So you’d think planners would have a good grasp on the cost-benefit of this splurge? Judging by how different returns have (so far) been to the various transportation methods funded it seems their grasp has been only partial.

Money spent on roads and conventional rail seems to almost always and everywhere provide benefit. Water is, so to speak, more of a wash. Money spent on airports and High Speed Rail (HSR) appears to provide, at best and only in some places, a marginal return, or none at all.

The paper though, IMHO, is flawed in two respects:

First the time period for different types of infrastructure returns are going to be different. I don’t know and wouldn’t argue this point strongly but I SUSPECT the benefits to HSR and airports are multi-generational whereas a new road stimulates trade almost instantaneously.

The second point, which in fairness the paper grazes, is a failure to address what prompted the rapid build out of the HSR and airports which has accelerated since 2008 thereby leaving the reader with the impression this build out has been irrational.

A detailed analysis of this second point is beyond the scope of this summary but two numbers from the paper help explain. Remember back in 2008 China pushed out a Rmb4trn stimulus package which saved it’s own and arguably the world’s economy from sliding into recession? Is it a pure coincidence that China’s national railway system today has a Rmb5trn outstanding debt (80% related to HSR construction)? I think not.

You can access the paper in full via the following link Rail, Rivers, Road or Air.

Happy Sunday.

print