26 October 2016
While corruption is a serious issue in China, the reality is that it has also served as a lubricant to get things done in the country. Photo:
While corruption is a serious issue in China, the reality is that it has also served as a lubricant to get things done in the country. Photo:

Infrastructure spending helps China despite waste and graft

About half of China’s infrastructure projects do not have economic value as the costs have been larger than the benefits, according to an article published in the Oxford Review of Economic Policy.

The findings suggest that spending in infrastructure projects may not have been the key factor behind China’s rapid economic growth over last three decades. The nation’s growth miracle is more related to market opening-up and reforms.

But the study may not be very persuasive. Oxford researchers examined 21 large rail projects and 74 road projects whose starting dates ranged from 1984 to 2008. The sampling size is quite limited given that China has millions of various infrastructure projects each year.

The research concluded that more than half of the projects do not have economic value, which also means the other half do have economic value. Those projects would still benefit economic growth.

Certainly, redundant and low-efficient infrastructure spending is bad for the economy, but underinvestment and a seriously lagging infrastructure, like the situation in numerous Asian countries including India and the Philippines, could be even worse.

Another important thing Oxford researchers have missed out is the corruption factor in China’s infrastructure projects.

The primary focus of the research is on observable factors, like how some projects were aimed at cutting the traffic time, improve resources allocation or create jobs. But let’s not forget that a chunk of the project spending went into pockets of corrupt officials, which in a perverse way has a positive side.

As China shifts from a planned economy to market economy, corruption acts as some sort of lubricant—offering incentive to government officials to carry out development plans. Some of them would have opted to do nothing or do things half-heartedly if there was no corruption money.

Some of the money the officials embezzled would be spent on properties, art, or luxury goods, benefiting the economy indirectly.

This corruption factor is very difficult to observe and therefore not included in the Oxford study.

Generally speaking, China’s economic miracle does primarily stem from market opening-up and reform, population dividend and globalization as well as the nation’s hard-working and smart people. However, infrastructure spending does play a role in that despite redundancy and waste.

Having said that, I agree China should be more cautious and precise in future with regard to infrastructure investment and that it should seek other measures to drive long-term growth.

Otherwise, the heavy infrastructure spending will only add to the nation’s worrying debt load and drag down economic efficiency.

This article appeared in the Hong Kong Economic Journal on Sept. 15.

Translation by Julie Zhu

[Chinese version中文版]

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