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Wednesday, April 21, 2021

ANALYSIS/OPINION:

China’s presence looms large in the unfolding infrastructure debate. President Biden has said that our rival is going to “eat our lunch” with respect to infrastructure if we fail to “step up” spending. Transportation Secretary Pete Buttigieg has expressed similar concerns. However, the autocratic government of China is no leader on efficient infrastructure development, and the Biden administration should stop putting it on a pedestal.

Despite its progress in recent years, China still has many characteristics of a developing economy. As its economy grows, it should come as no surprise that China is investing heavily in roads and rail. Additionally, a close look at the evidence indicates that many of its infrastructure projects have been poorly chosen.


Comparing a developed economy’s infrastructure investment to that of a developing country makes no sense. One country, the United States, has built out its infrastructure, so its primary weakness is in supplementing and maintaining what it has. The other, China, is working to connect its vast, geographically distant regions, not unlike America when it began constructing its system of interstate highways in the mid-20th century.

Both countries, it turns out, have made — and continue to make — inefficient choices about infrastructure investment.

Infrastructure investment can only promote long-term economic growth if roads and rail projects are chosen because the benefits outweigh the costs. For this to happen, all costs (planning, management, construction and maintenance) and benefits (traffic volume or ridership) must be analyzed carefully and accurately.

Research shows how political factors often influence infrastructure investment, to the point that projections of costs and benefits are overly optimistic. Generally, the evidence finds that these errors are not random, nor are they the result of honest mistakes or unforeseen events.

This has been known for a long time. Back in 1982, economist Don Pickrell looked at post-construction rail projects in eight U.S. cities and found that cost estimates had been low and ridership projections optimistically high.

Professors Brent Flyvbjerg, Mett Holm and Soren Buhl found the same behavior in many countries around the globe more recently, too. They explain how “strategic misrepresentation, i.e., lying” — or the use of funny numbers — is used to get projects built. The bottom line is that infrastructure project choices are based as much (or more) on politics than hard facts.

As for China, Oxford University researchers were able to compare its road and rail infrastructure investment with wealthy democratic countries in the Americas, Europe and other parts of Asia. China does not stand out as a role model.

Examining 95 Chinese road and rail projects built between 1984 and 2008, at a cost of $65 billion and spread among 19 of 22 provinces, they found cost overruns in 75% of the projects. On average, road and rail cost overruns were 27.5% and 41.5%, respectively. China also did no better than wealthy democracies in estimating project costs accurately.

Although the average time to build in China was faster than democracies, the researchers point out that the Chinese government’s “heavy handed” approach to land acquisition and population resettlement can speed things up. This wouldn’t be popular or particularly feasible in the United States.

When it comes to infrastructure quality, the World Bank found that China does poorly, often thanks to poor technical design. China’s roads have a fatality rate of 18.8 per 100,000 people per year. The U.K. rate is 2.9.

An estimate on projecting traffic flows indicates that almost two-thirds of the Chinese projects had traffic volumes that were 5% less than projected. In some cases, traffic volume was more than 40% less than projected. Yet in the remaining one-third of roads and rail projects, traffic volume actually ended up more than 60% higher, resulting in serious congestion problems. Only 28% of the Chinese projects passed a cost-benefit test.

While the United States has its issues with maintaining infrastructure, the evidence shows that China does not serve as a role model to follow. Its autocratic government may have more reasons to build, but it’s no better at picking public infrastructure projects than wealthy democracies like ours are.

• Robert Krol is a professor of economics emeritus at California State University, Northridge and a senior affiliated scholar at the Mercatus Center at George Mason University. He is the author of the Mercatus policy brief, “Will a Burst in Federal Infrastructure Spending Accelerate the Recovery from the COVID-19 Recession?”


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