Infrastructure Investments: The Road to China’s Future of Growth

In light of today’s budget announcement from the White House, I have decided to explore one of the main focuses of the $478 trillion spending plan that the President has come up with to revive the economy, infrastructure spending.

According to Mark Magnier’s article for the Wall Street Journal titled “Benefits of Infrastructure Spending Not So Clear-Cut, Economists Say,” “Washington-based Progressive Policy Institute concludes that every dollar spent on U.S. roads, bridges and public transport spurs $1.50 to $2 of growth.” According to research conducted by Oxford Economics for PWC’s study titled “Capital project and infrastructure spending Outlook to 2025,” “the Asia-Pacific market, driven by China’s growth, will represent nearly 60% of global infrastructure spending by 2025”

(www.pwc.com/cpi-outlook2025). The study also predicts that Western Europe infrastructure spending will not return to pre-crisis levels until 2018, as Asia’s has been growing this entire time.

“Developing economies, most notably China and other parts of Asia, account for nearly half of all infrastructure spending, up more than 10% from 2006” (www.pwc.com/cpi-outlook2025)

How will China’s success in the race for infrastructure growth will contribute to its economic growth compared to Europe’s?

While China’s economy had been growing in double digits over the last 20 years, growth has slowed recently. This growth is still at a respectable annual growth rate of 7%. China’s economy is maturing and beginning to lose its cost-competitive advantage to other lower cost countries. As this happens, China will need to make strategic investments to sustain its growth.  Investments in infrastructure can serve this growth need. Infrastructure investments immediately create jobs in construction and related industries. Infrastructure investments also provide opportunities for longer term, more sustainable growth and development.

China should continue to make SMART infrastructure investments, especially in high speed rail, ports and airports and wireless high-speed telecommunications to continue to open markets within China and to provide a better quality of life for its citizens.

Virginia Lau discusses Chinese high speed rail in her article “Record breaker: China’s incredible north-south high-speed train line plan” for CNN as the world’s longest high-speed rail line was just proposed to run from “Inner Mongolia’s Baotou city and running through southern Shaanxi, Hubei, Hunan, Guangxi and Guangdong, its final stop would be in Haikou city on Hainan Island, China’s southernmost province” (http://www.cnn.com/2015/01/08/travel/china-high-speed-north-south-rail/). Additionally, this project will connect rural provinces with urban areas such as Beijing. This will promote growth by providing sustainable job opportunities for those in rural areas, as discussed above.

One thought on “Infrastructure Investments: The Road to China’s Future of Growth

  1. Guyeon Kim

    I agree with the statement that China need to invest on infrastructure, specifically should make “smart” infrastructure investment. Korea also invested a lot of money on constructing infrastructure even before the country had rapid growth. At that time, many people thought those investments were poorly managed (in other words, insane), but actually they facilitated Korean economic growth a lot!

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