The world’s second biggest economy is the world’s
biggest investor in infrastructure.
CHINA SPENDS MORE ON INFRASTRUCTURE each year than North
America and Western Europe combined.
That’s according to a new study published last week by global management consulting firm
McKinsey & Company. The fact that China is investing so much in roads,
rails, ports—and everything else that keeps society up and running—hints at big
trends that could shape the global economy in the coming decades.
“Infrastructure investment has actually gone down in half
the G20 economies,” says Jan Mischke, senior fellow at McKinsey Global
Institute, who worked on the report. The culprit was the global recession in
2009. But it hasn’t stopped China.
Between 1992 and 2013, China spent 8.6% of its GDP on
building roads, railways, airports, seaports, and other development projects
that are key to keep people and goods on the move, and keeping the economy
strong. That same spending figure was just 2.5% for Western Europe, and 2.5%
for the US and Canada put together.
“The report is an important wake-up call about the perils
of under-investment in infrastructure,” says Robert Puentes, a senior fellow
specializing in metropolitan policy at the Washington-based think tank, the
Brookings Institution. "The super-charged growth in China's economy is
fueled by these investments in infrastructure."
Europe’s and North America’s infrastructure is getting
old, fast. It needs more money to be replaced, made better, and made safer.
More investing also means greater environmental sustainability, more jobs, and
innovation that fuels new technologies.
Last year, for example, the US Department of
Transportation study revealed that more than 61,000 bridges in the
country are “structurally deficient”; in 2014, US Vice President Joe Biden described New
York’s LaGuardia Airport as
“third world.” In 2013, the UK government announced a £100
billion infrastructure plan, saying that the UK had “for
centuries been pioneers in infrastructure,” but in recent decades, “let this
proud record slip.”
Last week's study asserts that, based on the current trajectory
of investment, the world will be left with major infrastructural gaps: The
world will need to invest $3.3 trillion a year for the next 15 years to keep
pace with economic growth forecasts.
The report is an important wake-up call about the perils
of under-investment in infrastructure.
Having said that: Of course China would be spending a lot
on more ways to get its citizens from point A to point B. Emerging markets like
India and China are looking to build from scratch, not just improve things that
already exist. The report even says that 60% of worldwide infrastructure
investment need will be in emerging economies like China, Eastern Europe, Latin
America and the Middle East.
But Puentes points out that one has to remember, when
looking at the report’s numbers, that different countries spend different
amounts on different things. For example, the US is required by law to spend a
mandatory amount on certain programs, like Social Security, a federal welfare
program.
“If the US spent zero on Social Security and defense, the
percentage of the total that goes [toward] infrastructure would be higher,”
Puentes says.
Jan Mischke agrees: China will need to invest more of its
GDP annually, and the US and Europe will need to invest less, since there’s a
lot of infrastructure already in place. The problem? “China has actually
invested much more than needed, and the US, much less than needed,” Mischke
explains. "Despite this overinvestment, China's needs for the future
remain vast. The key opportunity for China is to deploy capital to more
productive areas like research and innovation, and to raise efficiency and
effectiveness of spending."
Incidentally, China is home to the world’s first maglev
train—a superfast train that replaces wheels with magnetic levitation and
reaches a top speed of 430kph (267mph). It opened way back in 2004, and it
represents futuristic technology that most other nations can only dream of,
even today.
China's taken its impressive infrastructure business on
the road: Last year, it signed a £32 billion deal with Brazil and a£5.2 billion deal with the UK to help build new infrastructure in
those countries, like railways and power plants.
Puentes says the key to building robust infrastructure
programs is in mixing public and private investments — ginning up “true
partnerships between government agencies, private firms, financiers, and the
general public. This is how many nations successfully develop infrastructure
around the world today,” he says.
For instance, Japan’s train system is an example of this
public-private balance fuelling the development of a widespread, reliable
transportation framework. Its extensive rail network has been a combo of
privately invested money and public funds from the government for years.
The emerging market of India, meanwhile — which placed
second in the McKinsey study, spending 4.9% of its GDP on infrastructure — saw more private sector
companies helping to build roads starting in the mid-2000s.
China has actually invested much more than needed, and
the US, much less than needed.
Looking ahead, though, things will only get trickier.
There are a lot of new technologies that aim to disrupt the way we build roads,
send goods, and transport ourselves. Self-driving cars and deliveries by
drones, for example, are realities that are being rapidly realized, and will
definitely disrupt how we decide to allocate money to transit projects.
One thing is for sure, though. Considering how quickly
ageing infrastructure is in some of the world’s richest nations — including the
US and UK — looking to the East for a good example could prove to be the
smartest spending decision of all.
If you would like to comment on this or anything else you
have seen on BBC Autos, head over to our Facebook page
or message us on Twitter.
And while you're at it, join the BBC Autos community on Instagram.
And if you liked this story, sign up for the weekly
bbc.com features newsletter, called “If You Only Read 6 Things This Week”. A
handpicked selection of stories from BBC Autos, Future, Earth, Culture, Capital
and Travel, delivered to your inbox every Friday.China’s secret to
its success
No comments:
Post a Comment