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China's Engineering Mega-Projects Dwarf the Great Wall
HughPickens.com writes:
David Barboza has an interesting article in the NYT about China's engineering megaprojects. For example, there's the world's longest underwater tunnel, which will run twice the length of the one under the English Channel, and bore deep into one of Asia's active earthquake zones, creating a rail link between two northern port cities, Dalian and Yantai. Throughout China, equally ambitious projects with multibillion-dollar price tags are already underway. The world's largest bridge. The biggest airport. The longest gas pipeline. Such enormous infrastructure projects are a Chinese tradition. From the Great Wall to the Grand Canal and the Three Gorges Dam, this nation for centuries has used colossal public-works projects to showcase its engineering prowess and project its economic might.
In November, for example, the powerful National Development and Reform Commission approved plans to spend nearly $115 billion on 21 supersize infrastructure projects, including new airports and high-speed rail lines. "Clearly, China's cost advantages are going to shrink somewhat over the longer-term and prices for projects are only going to rise," says Victor Chuan Chen. "I think the government has done an admirable job in getting many of these projects off the ground while the economics were still very favorable." China is pushing the boundaries of infrastructure-building, with ever bolder proposals. The Dalian tunnel looks small compared with the latest idea to build an "international railway" that would link China to the United States by burrowing under the Bering Strait and creating a tunnel between Russia and Alaska.
But whether China really needs this much big infrastructure — or can even afford it — is a contentious issue. Some economists worry that China might eventually be mired in enormous debt (PDF) and many experts say such projects also exact a heavy toll on local communities and the environment, as builders displace people, clear forests, reroute rivers and erect dams. "It makes sense to accelerate infrastructure spending during a downturn, when capital and labor are underemployed," says David Dollar. But "if the growth rate is propped up through building unnecessary infrastructure, eventually there could be a sharp slowdown that reveals that the infrastructure was really not needed at all."
In November, for example, the powerful National Development and Reform Commission approved plans to spend nearly $115 billion on 21 supersize infrastructure projects, including new airports and high-speed rail lines. "Clearly, China's cost advantages are going to shrink somewhat over the longer-term and prices for projects are only going to rise," says Victor Chuan Chen. "I think the government has done an admirable job in getting many of these projects off the ground while the economics were still very favorable." China is pushing the boundaries of infrastructure-building, with ever bolder proposals. The Dalian tunnel looks small compared with the latest idea to build an "international railway" that would link China to the United States by burrowing under the Bering Strait and creating a tunnel between Russia and Alaska.
But whether China really needs this much big infrastructure — or can even afford it — is a contentious issue. Some economists worry that China might eventually be mired in enormous debt (PDF) and many experts say such projects also exact a heavy toll on local communities and the environment, as builders displace people, clear forests, reroute rivers and erect dams. "It makes sense to accelerate infrastructure spending during a downturn, when capital and labor are underemployed," says David Dollar. But "if the growth rate is propped up through building unnecessary infrastructure, eventually there could be a sharp slowdown that reveals that the infrastructure was really not needed at all."
It's easy for us in the US to decry China building massive projects, when we already have our transcontinental rail, interstate highways, panama canal, etc. which would require so much 'environmental review' today, (just look at the difficulty of building modern nuclear power plants.)
China might go into 'enormous debt' to build things? Every other country has already gone into 'enormous debt,' why shouldn't they take advantage of the opportunity while they still can? Get while the getting is good.
At least they'll have something built to show for it, unlike spending that money to bail out banks (and if anyone wants to protest that the banks paid back TARP, I'm well aware of that, and also aware they got their government money through other channels).
"First they came for the slanderers and i said nothing."
You said it as a joke, but China's debt isn't small. They buy US treasury bonds, but issue their own bonds to pay for them. So yes, in fact, the Chinese government is borrowing from the Chinese people.
"First they came for the slanderers and i said nothing."
For those of you who have not been to China, what China does in terms of infrastructure projects is quite laudable. For a population of that size and country of that size, they need such projects for faster development. In the US, we are more interested in political scoring than building infrastructure or other developmental projects. Is it a sign of decay for us?
Yeah, the article reads as if written out of jealousy.
Infrastructure is a good thing to build, as long as it is necessary. When it will be used, infrastructure is an economic multiplier. The article suggests that China is building far too much infrastructure, and then gives examples of unused infrastructure. But looking at their map (picture in article), they are building mostly subways in megacities (good idea), container terminals (good idea, the Dutch do the same), high speed rail (good idea), canals for irrigation (debatable, but hopefully low maintenance and long lifetime once completed), and a few crazy projects which may eventually flop.
The funny thing is that China does not care if a handful of multi-billion dollar projects fail to deliver, and fail to have an economic payback. As long as the majority of the projects perform, they win.
The Western economies are stuck somewhere between economic conservatism and economic fear. Corporations do not dare to invest this big, because for a corporation this can be a make or break, and that risk is too big. Also, corporations require a 3-5 year economic payback, whereas infrastructure typically has a much longer lifetime, and is only an enabler, causing economic growth, not immediate profit. Western governments do not dare to invest this big, because every dollar spent is analysed and they must win the next elections.
Basically, we cannot do these kinds of projects, because we all fear for our pension and fear that we lose what we have. And we are jealous of the Chinese who can do this, and we talk ourselves to sleep with articles like this that predict that the Chinese got it wrong after all.
Some economists worry that China might eventually be mired in enormous debt
While any country can over stretch itself and find itself mired in unsustainable debt, it is hard not to roll one's eyes when one reads the report's really, really, really, remote scenarios for how China could get itself into such a situation. Given the current global geo-economic reality, spending as much time as the report does on the likelihood of this scenario coming to pass almost discredits the rest of what is actually a great report.
Chinese foreign reserves are almost US$4 trillion (as at September 2014) - more than the combined total foreign reserves held by the next 7 largest holders of foreign reserves (i.e.Japan, Saudi Arabia, Switzerland, Taiwan, Russia, Brazil and Republic of Korea). The United States foreign reserves, by comparison, are a paltry US$134 billion
At the other end of the scale, United States foreign debt stands at a staggering US$18 trillion - about US1 trillion of that borrowed from the Chinese - more than that of the United Kingdom and Germany combined.
The report then nonchalantly skims over the distinction between the mega-, giga-, tera- projects around the world and lumps them together as if they all pose the same systemic risks to each respective economy. This may serve the purpose of highlighting the manic pace of development taking place in China, but the author's US corollary to China's mega airports, rail infrastructure, city expansion, ports, malls, urban housing (albeit many of which still lie empty), are what I would call vanity mega-projects, such as the Joint Strike Fighter aircraft program, the International Space Station, etc.
If I were worried about a major global economy (and the US and China now the two largest economies in the world, by a long shot) "eventually being mired in enormous debt", it would be the one that is spending trillions of dollars on projects that cannot be used to further grow the country's economy in future. Spending billions on improving the county's economic efficiency (such as rail infrastructure, ports, airports, housing for migrant workers, renewable energy, manufacturing, education, etc.) cannot be equated to spending billions on improving the efficiency with which one can obliterate one's adversaries from the sky.