Comment on “China's Transport Infrastructure Investment: Past, Present, and Future”

• DOI: http://doi.org/10.1111/aepr.12137
• Author: Marcus Noland
• Date: 01 July 2016
• Published date: 01 July 2016

Comment on “China’s Transport Infrastructure

Investment: Past, Present, and Future”

Marcus NOLAND†

Peterson Institute for International Economicsand East-West Center

JEL codes: O18, R42, R48

The expansion and improvement in China’s transportation infrastructure over the past

30 yearshave been stunning, as I can personallyattest. Qin (2016) presents a comprehensive

overview of China’stransportation infrastructure,addressing various modalities (road, rail,

aviation, maritime), financing mechanisms and sustainability (or lack thereof), the impact

of improved connectivity on economic activity, its spatial distribution, and its impact on

poverty.This analysis is largely directed towardthe development of domestic transportation

assets, although the paper does touch uponthe recent “One Belt, One Road”initiative that

involves Chinese investment in transportation infrastructure and non-transport aspects of

connectivity, such as the internet and e-commerce.

Investmentin transportation infrastructure comeswith huge sink costs. Andthe state is

prominentin the provision of theseassets. The enormousconstruction costs,impact on land

prices, and the spatial distribution of economic activity more broadly means that

transportation investment is subject to high stakes political economy. Consequently, a

certain amount of public investment will go into prestige projects and projects designed

sub-optimally from an efficiency standpoint to meet parochial political demands, even

taking the possible divergence of social and private returns into account. This observation

is close to a universal truth. So given the enormity of China’s investments in recent years

the questionis not so much whethersome of these projectsare wasteful or are not financially

sustainable on the terms originally envisioned. The real question is whether such projects

are a relatively large or small share of the portfolio. Or put another way is China’s political

economy of public investment significantly better or worse than that observed elsewhere?

That question surely cannot be answered now—it will be years before it can be answered

retrospectively. Yet, I think that Qin’s paper could be improved by pushing a little harder on

this issue, even if the analysis is speculative. To give but one example, Qin observes that an

official audit discovered special vehicles set up by local governments for infrastructure

development had borrowed the equivalent of 27% of GDP. So the scale of this borrowing is

non-trivial,evenforthissingleformoffinance.Addtothatborrowingforexpresswaysto

be paid out of future toll streams. Public–private partnerships (PPPs) have become

increasingly ubiquitous and possess many advantages, but tend to be pro-cyclical and carry

counterparty risk associated with the failure of the private partner. The point is that the

†Correspondence: Marcus Noland, Peterson Institute for International Economics and East-West

Center, 1750 Mass. Ave. NW, Washington, DC 20036, USA. Email: mnoland@piie.com

doi: 10.1111/aepr.12137 Asian EconomicPolicy Review (2016) 11, 220–221

220 ©2016Japan Center for EconomicResearch

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