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Hey Big Spender
Infrastructure Boondoggles Weigh Down Chinese Economy

Don’t tell Jerry Brown, but new economic research suggests that over-investment in bad infrastructure projects with big cost overruns has actually hurt China’s economy rather than helped it. The FT reports:

More than half of Chinese infrastructure investments have “destroyed, not generated” economic value as the costs have been larger than the benefits, according to researchers at Oxford university, a finding that will fuel debate over the viability of China’s infrastructure-heavy growth model. […]

[Infrastructure] 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.

Politicians love the idea that big infrastructure projects will work economic magic regardless of whether they are needed or what they cost. And by spending big on these projects, they generate support from both unions and construction companies.

But unneeded projects or poorly conceived ones that lead to vast cost overruns cause more problems than they solve—as with, for example, badly designed high speed rail systems. Researchers are seeing that in China, and it’s not a stretch to imagine a similar effect occurring in spend-happy California.

The Golden State’s infrastructure woes go beyond the mere scope of its spending, however. Funding for these boondoggles is drying up as the state’s carbon market—envisioned as a key revenue stream for politicians’ pet pork projects—continues to underperform. Sacramento, it seems, could learn a thing or two from Beijing’s mistakes.

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  • Gary Hemminger

    Again, I think there is a misunderstanding about the purpose of Jerry Brown’s and California’s investment in large infrastructure projects. It isn’t to reap some great reward, it is to buy votes and transfer money to the people and industry’s deemed important to the Democrats. The fact that these “investments” might not pay off isn’t really a major consideration. So you can warn them all you want, but the issue isn’t about Return on Investment, it is about power and influence. They use taxpayer money to gain more power and influence for those people and causes that they deem worthy.

    • Dale Fayda

      Agreed. I sincerely doubt that even Governor Dementia really thinks his “legacy” project will ever become fully operational, but like you said, that’s largely irrelevant to the Democrats.

    • LarryD

      The old Keynesian excuse is just that, an excuse to buy votes and pay off cronies.

      Oh, and virtue-signalling, that’s part of the rationale nowadays too.

  • Andrew Allison

    Perhaps we should address the reasons why “Politicians love the idea that big infrastructure projects will work economic magic regardless of whether they are needed or what they cost.” It’s about having more money with which to buy favors, pure and simple.

  • Angel Martin

    “But unneeded projects or poorly conceived ones that lead to vast cost overruns…”

    Every dollar of “cost overruns” is an additional dollar that wouldn’t be earned otherwise. People who get money they didn’t earn are always ready to return the favour in some way.

    “Vast cost overruns” are a feature, not a bug.

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