Riding China’s infrastructure boom

Tony Abbott famously declared he wants to be known as an "infrastructure Prime Minister".

China, it is worth noting, has had infrastructure leaders for well over 20 years. Since 1992, China has on average plowed over 8.5 per cent of its annual GDP into infrastructure – far exceeding what any other region or country spends.

In absolute terms, China's annual infrastructure spending now surpasses that of United States and European Union. And there appear no immediate signs of this slowing down. Under China's current 5-year plan (2011 - 2015) the government intends to invest as much as RMB 7 trillion (AUD 1.2 trillion) in urban public facilities. An additional RMB 3 trillion (AUD 550 billion) is planned for its national rail network.

Last year Beijing devoted over RMB 630 billion (AUD 114 billion) to spending on a range of capital works projects. In just one city, Wuhan, there are plans to spend over RMB 2 trillion (AUD 360 billion) over the next five years.

China's consistently impressive growth figures are in a large part due to government-directed investment in 'infrastructure', broadly defined. Investment – of which infrastructure investment forms a dominant part – contributes up to 50 per cent of China's GDP.

To a large degree, one's opinion of the China story depends on one's assessment of the success of this infrastructure-driven growth – and the monetary and fiscal settings that support it. It is certainly not hard to be impressed with some of what has been built: from high-speed rail networks to world-record long bridges to power plants and massive dams.

But it is worth remembering that the success of infrastructure is ultimately determined not by whether something is awe-inspiring from an engineering perspective, but rather whether what has been built actually produces a net economic benefit. There is, after all, no point investing public or private funds in a project if the return on investment (properly defined) is less than what you put in.

So how do China's plans measure up on this front?

Some have been rather over the top in their assessments.

"I don't believe China is at risk of emulating the 'bridges to nowhere' phenomenon some other countries have experienced", pronounced Australia's then ambassador to China, Geoff Raby, back in 2010 – after China's enormous infrastructure binge fiscal stimulus project of 2008 – 2009.

What is a 'bridge to nowhere'? The origin of the catchphrase comes from a notorious $US 300 million project to connect to sparsely populated towns in Alaska. It was picked up during the US Presidential Election of 2008 as an emblematic example of infrastructure investments made more to satisfy political considerations, than based on their economic benefit.

Have there really been no examples of this type of thing in China?