China infrastructure investment model “destroyed, not generated” economic value: Report

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London | Published: September 29, 2016 6:10:23 PM

According to an Oxford University report, infrastructure investment has been a major driver of Chinese economic growth over the past 35 years, but currently, more than half of Chinese infrastructure investments have been “destroyed, and are not generating ” economic value, as costs have been larger than benefits.

China has stepped up infrastructure spending this year to buffer a slowdown in manufacturing investment. (Source: Reuters)China has stepped up infrastructure spending this year to buffer a slowdown in manufacturing investment. (Source: Reuters)

According to an Oxford University report, infrastructure investment has been a major driver of Chinese economic growth over the past 35 years, but currently, more than half of Chinese infrastructure investments have been “destroyed, and are not generating ” economic value, as costs have been larger than benefits.

This finding is likely to fuel a debate over the viability of China’s infrastructure-heavy growth model.

China has stepped up infrastructure spending this year to buffer a slowdown in manufacturing investment. But such investment leads to significant waste while adding to China’s worrying debt load, says the paper by Oxford professors, led by Atif Ansar, a lecturer at Oxford’s Saïd Business School.

“Far from being an engine of economic growth, the typical infrastructure investment fails to deliver a positive risk-adjusted return,” the paper found.

“Poorly managed infrastructure investments are a main explanation of surfacing economic and financial problems in China. We predict that, unless China shifts to a lower level of higher-quality infrastructure investments, the country is headed for an infrastructure-led national financial and economic crisis,” the Financial Times quotes the report, as saying.

The paper takes aim at what it calls the “prevalent view” among economists that high rates of infrastructure investment are crucial to growth for developing economies and that China offers a model for others emulate, the Financial Times adds.
On the contrary, Ansar warns that countries such as Brazil, Nigeria and Pakistan should not follow China’s path.

President Xi Jinping’s signature foreign policy initiative, the New Silk Road, calls for the country to finance road, rail and port construction to connect China with central Asia, the Middle East and Europe.
“It is a myth that China grew thanks largely to heavy infrastructure investment. It grew due to bold economic liberalisation and institutional reforms, and this growth is now threatened by over-investment in low-grade infrastructure,” said Ansar.
The research paper said that three quarters of all projects suffered a cost overrun, which has exacerbated the debt problem which appears in the current issue of Oxford Review of Economic Policy.

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