Chinese infrastructure: The big picture

Dissertation Writing Help in Chinese infrastructure: The big picture

China leads the world in infrastructure investment. Explore today's impressive reality, and see what the future holds, in this by-the-numbers summary

Infrastructure development remains a top priority for China's government, which has long recognized that a modern economy runs on reliable roads and rails, electricity, and telecommunications. From the late 1990s to 2005, 100 million Chinese benefited from power and telecommunications upgrades. Between 2001 and 2004, investment in rural roads grew by a massive 51 percent annually. And in recent years, the government has used substantial infrastructure spending to hedge against flagging economic growth.

China's leadership has charted equally ambitious plans for the future. Its goal is to bring the entire nation's urban infrastructure up to the level of infrastructure in a middle-income country, while using increasingly efficient transport logistics to tie the country together. What follows is a by-the-numbers portrait of this dynamic sector.

 
Investment leader 
 

As China has grown, it has plowed a substantial 8.5 percent of GDP into infrastructure, far exceeding what any other country or region spends: twice the level of fast-growing India and more than four times that of Latin America, for example. In absolute terms, China's annual infrastructure spending now surpasses that of the United States and the European Union. Over the past two decades, the largest portion of this spending has gone toward roads, power, rail, and water. The rapid pace of expansion has fueled concern about the quality of design, materials, and construction-problems underscored by a disastrous 2011 train crash tied to faulty rail signals and by a rash of recent bridge collapses. Getting the economics of investment levels, operating costs, and user fares right can be challenging, too. This issue recently entered the public eye when many Chinese citizens found that ticket prices for new high-speed rail lines were more than they could afford.

 
Seeking world-class status

China's stock of infrastructure as a percentage of GDP is now above the global average -- in fact, its asset base relative to GDP is greater than that of developed nations such as Canada, Germany, and the United States. Nonetheless, China's infrastructure still ranks only 48th in the World Economic Forum's survey of factors contributing to global competitiveness, despite the country's steady climb up the ladder in recent years. According to a range of global benchmarks assessing infrastructure penetration, China's greatest strengths lie in power systems and telecommunications. In phone and Internet usage, as well as electrification, China not only is above the average of developing nations but also approaches the levels of developed markets. China does less well on measures such as the proportion of roads that are paved and access to improved water sources.

 
Tomorrow's targets

China's leadership has set aggressive goals for many infrastructure sectors: it plans roughly 70 new airports, 43,000 kilometers of new expressways, and a major expansion of port facilities by 2020, as well as 22,000 kilometers of additional rail track by 2015. Looking further ahead, we estimate that the country will need to spend $16 trillion (6.4 percent of GDP) on such infrastructure projects from now to 2030 to maintain its stock of assets at current levels. Power, roads, telecommunications, and water will remain leading areas of expenditure.

To a large degree, funding will continue to come from the public purse. China's various levels of government supply 96 percent of infrastructure financing: 99 percent funding of urban public-transit and airport projects, for example, and 80 to 85 percent of power, water, and port projects. Private sources provide the remainder. As spending rose from $116 billion annually in 2001 to over $500 billion in 2010, the number of engineering and construction firms swelled from 45,000 to more than 71,000. Perhaps not surprisingly, five of the top ten global construction and engineering companies (by 2010 revenues) are Chinese.

 
Regional integration

New policy blueprints, outlined in the 12th five-year plan of China's National Development and Reform Commission, link infrastructure, city development, and regional economic growth. Urban hubs along China's coast will remain the nation's biggest and wealthiest economic zones and continue to invest in facilities that support trade. In the future, though, inland areas with faster industrial-growth rates will get an increasing share of infrastructure investment. China also is poised to develop ten logistics corridors connecting city clusters across the nation with new rail lines, expressways, and bridge crossings. Interior regions will receive additional funding to improve their resource utilization and address environmental concerns. In larger eastern cities, some infrastructure investments will underpin the transition from traditional manufacturing to high tech, services, and advanced manufacturing.

New logistics corridors envisioned by infrastructure planners will link both new and emerging city clusters

Planned key logistics channels

1. between northeast China and areas within Shanhaiguan
2. linking south to north in east China
3. linking south to north in central China
4. between eastern coastal area and northwest China
5. between eastern coastal area and southwest China
6. between northwest and southwest
7. between the Yangtze River and the Grand Canal

Two other nationwide channels address transportation of coal and imports/exports; a third will connect southwest China to countries in southeast Asia.

Source: Logistics industry restructuring and revitalization plan, State Council of the People's Republic of China, March 2009; McKinsey analysis

 
Room to maneuver

China is in a comfortable position after years of infrastructure investment solidly above the global average. We assume that investment will continue at these levels. But we estimate that the country could reduce future investment from 8.5 percent of GDP currently to 6.4 percent of GDP and still maintain its stock of infrastructure at 71 percent of GDP, the average of ten major economies around the world. By contrast, we estimate that global spending on infrastructure will need to rise, on average, to 4.1 percent of GDP, from 3.8 percent, if the rest of the world is to maintain the quality of its stock. For many nations, such as Brazil, India, and the United States, the investment climb will be steeper.

In continuing such elevated levels of spending, China has the potential to start resembling Japan (arguably an overinvestor in infrastructure). There are opportunity costs as well. Lower levels of infrastructure investment in China could free up resources to its service sector (where capital is needed to generate employment) and to investments in technologies (such as energy efficiency and renewable energy) that could mitigate the environmental impact of industrialization. China could achieve further reductions by mustering infrastructure-productivity gains of the kind that our colleagues have described elsewhere.[ 1]

Following years of strong infrastructure investment, China's leaders now aim to deliver the benefits to its cities and regions. That goal will require a new, infrastructure-productivity mind-set, whose hallmarks are a greater openness to private-sector involvement and better management discipline and project governance than regional and local governments, in particular, have shown in the past. Although foreign players could help, in the past the government's near-monopoly on projects left them with only a small space. By contrast, in China's real-estate sector, private firms have played a substantial role in project management and finance, helping to drive down costs.

Despite challenges such as these, the surging scale and broadening scope of infrastructure development seem inexorable. Much as the pace of urban and industrial development often renders China unrecognizable to returning visitors, the next wave of infrastructure investment is going to create a landscape that will differ strikingly from today's already impressive reality.

Source- Chinese infrastructure: The big picture. By: Chen, Yougang, Matzinger, Stefan, Woetzel, Jonathan, McKinsey Quarterly, 00475394, 2013, Issue 3

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