At first glance, it seems ridiculous that China has an infrastructure and construction problem. China spent 4.8 percent of GDP on inland transport infrastructure in 2021, an astounding amount. The U.S. spent just 3.5 percent of GDP on the military. So how could China have an infrastructure problem? It all comes down to the quality of infrastructure being built and its larger effect on China’s economy.
China has relied considerably upon infrastructure projects to generate growth while also helping modernize its economy. By continually building roads and railways, China was investing into itself while also creating jobs and markets. This strategy was so successful that the Chinese Government massively increased infrastructure spending for many years, approving almost any project and lending billions of dollars to construction companies. Railroads, highways, skyscrapers, and airports were all built at an astounding pace. For a while, this system worked perfectly. As a share of GDP, total Chinese infrastructure investment increased to an astronomic 24% in 2016.
The problem is that it was always unsustainable. The government approved projects that were unneeded and poor quality for the sake of growth. China is now famous for its “ghost cities”, where infrastructure and urban development has drastically outpaced demand. Millions of apartments and offices sit empty, but the Chinese government continued to approve projects because it produced economic growth. Empty apartments are especially useless for a nation that will soon have a declining population.
Beyond just too much, the infrastructure and construction projects in China are very often of extremely poor quality. China has spent billions helping build massive infrastructure projects in other countries to improve relations and increase trade, but even some of these projects have been criticized for poor quality. China is spending big on infrastructure in Africa, but its international ‘Belt and Road’ initiative is beginning to decrease lending.
In China itself, the remaining big infrastructure projects have less return on investment than they did before. Hundreds of half-finished projects are littered across China, where funding simply ran out. Chinese mega projects, once a great harbinger of economic growth, are now contributing massively to the local government debt crisis. China’s government is quick to brag about its high-speed rail network, by far the largest in the world, but most lines generate a loss and operate a fraction of the capacity. Only the lines between large cities generate profits, and the rural train stations are underused and contribute to local government debt.
China has relied on construction of infrastructure for economic growth, but it seems to have hit a limit. Infrastructure projects are no longer giving a significant return on investment, and the Chinese government has certainly signaled a slowdown.
China sees that this strategy is no longer working as well, so it is hoping to improve the quality and long-term viability. This includes transitioning to information infrastructure, such as 5G networks, R&D institutions, and better power transmission lines. It remains to be seen whether this kind of investment can help improve the Chinese economy, which has been on the backslide recently. It would be unfair to declare that over-building infrastructure of poor quality is the only reason for the Chinese economy dipping, but the desire for immediate economic growth at the expense of the long term has certainly contributed to it greatly.
The U.S. can take a lesson from China: build deliberately and with long term goals in mind. China has been building extensively for decades because it was an effective way to grow the economy, but they made no effort to control the quality or monitor the effectiveness of the construction. The U.S. is unlikely to have this sort of problem because regulations and controls are much stricter, but that doesn’t mean it shouldn’t build more infrastructure faster. Both the Trump and Biden Administrations have desired an increase in infrastructure spending, though for slightly different reasons.
U.S. Government spending on infrastructure has been on the decline for decades, and the U.S. is ranked 13th in the world for overall infrastructure quality. American bridges are in desperate need of repair, and increased energy demand from clean energy will require thousands of miles in new transmission infrastructure. Public infrastructure spending generates long-term benefits to the economy. Improvements in transportation infrastructure can help prevent congestion, costing the U.S. $179 Billion in lost productivity and fuel in 2017.
Infrastructure is an investment into the economy. The U.S. can learn from China’s mistakes. Improvements in infrastructure can bring huge economic growth, but it must be of high quality and be sensible for a return on investment. Cheap and ineffective construction will create minimal immediate value, but infrastructure built to last can help bring economic benefits for decades.
Written by Owen Rogers, Policy Intern
The Alliance for Innovation and Infrastructure (Aii) is an independent, national research and educational organization. An innovative think tank, Aii explores the intersection of economics, law, and public policy in the areas of climate, damage prevention, energy, infrastructure, innovation, technology, and transportation.