Should China spend more on infrastructure?

Rcan so much has been used by the few. During the long closure in Shanghai, which was mercifully relaxed this week, the city’s impressive infrastructure stood in excellent isolation from most of the citizens it is supposed to serve. The subway (all 831 km) was terribly quiet. The two airports, which served 120 million passengers in 2019, operated 99% below normal. The famous train could not be magnetized or levitated. Six-lane highways provided an ocean of road space for scooter cups. China is famous for creating “ghost towns”: new, sparsely populated areas that are gradually coming to life as people settle. The blockade in Shanghai reversed this process, turning a living metropolis into something inanimate.

Despite this unrealistic non-use of existing infrastructure, the government’s best hope for economic recovery is to add more. Much more. Expenditures on transportation, water conservation and reconstruction of old quarters will be a “strong driver” for the economy, helping to employ 290 million migrant workers in China, Prime Minister Li Keqiang said in an emergency teleconference with thousands of local officials on May 25. . The government will also “vigorously” promote 102 “major projects” listed in the country’s five-year plan, such as flood prevention, ultra-high-voltage power lines and four-lane highways, including one to Yunnan City, renamed Shangri. -La.

If Omicron is reborn, periodic blockades could prevent China from getting out of trouble this year. But even if things go according to plan, a successful incentive will raise a deeper question. Does China need all this additional infrastructure? Or the extra cost of leaving behind extra “white elephants” as unnoticed by people as airports, roads and railways of closed Shanghai?

The question is difficult to answer because the infrastructure in China is difficult to measure or even identify. Definition used by the National Bureau of Statistics (nbs) often ignores areas such as gas and electricity, as well as social sectors such as education and health. Worse, the official investment figures, developed with central planning in mind, are not in line with modern national accounting. Also due to shifts in classification and reporting thresholds they do not conform to themselves over time. As Carsten Holtz of the University of Hong Kong Science and Technology once remarked, if anyone intended to make this data “as unusable as possible, it probably couldn’t do a better job than nbs does ».

In an article published by the World Bank in 2020, Richard Hurd, however, believes that China’s infrastructure and state capital reserves have risen from 64% of GDP on the eve of the global financial crisis in 2007 to 107% in 2016 (the last figure in his work). This new importance of infrastructure (and housing) in Chinese investment may help explain the country’s slowdown in productivity over the past decade. Another measure by imp sums up all investments made by China’s central and local governments. According to this method, the stock of state capital was even larger: 151% of GDP in 2019 among the highest shares in the world.

Both measures compare the scale of China’s infrastructure to its size GDP. This convention makes some sense: a bigger economy needs a bigger backbone to support it. Conversely, a small economy where people are few or limited in their means may fit into a smaller infrastructure structure. If few people can afford cars, flights or smartphones, the country will have less need for roads, airports and 5d towers. By this logic, infrastructure is a kind of “entrance” that must be sized according to the scale of production.

But GDP this is not the only relevant comparison. Indeed, saying that the country’s infrastructure should be proportional to it GDP it is the same as saying that poor countries should have poor infrastructure. Some common infrastructure components are more like amenities than production resources. A cleaner environment, a faster bus ride or a more comfortable train journey are things that people with any income level can appreciate. From this point of view, the amount of infrastructure per person is important, regardless of his income.

Unfortunately, China’s infrastructure is less impressive compared to its huge population. For example, there are 120 km of motorways per 1 million inhabitants, compared to 179 km in France and 326 km in America. And that’s 106 km of railways per 1 million people, compared to 236 km in Britain and more than 400 km in Germany. Chinese subway lines are more than 20 times longer than French ones. But China’s population living in cities (more than 500,000 people) is also more than 20 times greater. According to some estimates, China also has only 4.4 intensive care beds per 100,000 people compared to 14 in America – a catastrophic lack of medical infrastructure that helps explain its intolerance to the COVID outbreak. Indeed, the country has 37 economies imp‘databases’ that have more public capital per person than China. Probably, these economies do not think that their additional infrastructure is completely superfluous.

Longer road to Shangri-La

Critics of China’s proposed infrastructure stimulus are concerned that it will displace other, more productive forms of spending. But in a devastated Chinese economy, other costs are unusually weak. Without government assistance, the level of demand may be insufficient to make full use of the country’s labor and capital, including existing infrastructure. A recession could impose on the economy the same kind of forced inaction as blocking. The time and energy that Chinese workers will devote to expanding power grids, waterways and roads in Shangri-La could be lost to the economy forever. Wasteful spending is a curse in China. But under-spending can be the most ivory waste of all.

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