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.