China's Infrastructure Development: Boom, Utility, and Future

Key Insight

China experienced a massive infrastructure spending boom, notably escalating after 1998 as part of a fiscal stimulus following the Asian financial crisis. This led to the rapid expansion of a national expressway network, which grew from under 5,000 kilometers in 1997 to 112,000 kilometers by 2014, making it one and a half times larger than the US interstate system. Ports along the coast expanded sixfold by 2013, handling more container traffic than the next six countries combined, with Shanghai becoming the world's largest container port. Investment in power plants exploded after 2003, quadrupling generation capacity from 357 gigawatts in 2002 to over 1,300 gigawatts by 2014, surpassing the US by 20 percent.

Massive investments in telecoms and internet infrastructure enabled mobile phone users to increase from 270 million to 1.3 billion and internet users from 68 million to 650 million between 2003 and 2014. A 16,000-kilometer high-speed passenger rail network was launched in 2003, and more recently, urban infrastructure like 3,000 kilometers of subway networks in 22 cities and sewage treatment plants received emphasis. This building spree was driven by legitimate infrastructure needs for China's rapid 10 percent average economic growth (doubling the economy every seven years), ultralow interest rates, rising land sale revenues, and bureaucratic incentives for local officials to build infrastructure to advance their careers and city administrative hierarchies.

Most of China's infrastructure is useful and productive, despite criticisms of wastefulness. Considering China's continent-sized scale and population four times that of the US, per capita infrastructure indicators do not suggest overbuilding compared to developed economies. For example, the high-speed rail network, while costly, was justified by lower construction costs in China and an existing rail network operating at several times the capacity utilization rate of other major economies. The new lines freed up older routes for freight, with increased freight charges projected to offset capital costs. However, the accelerated construction timeline, driven by economic stimulus, also created scope for corruption, exemplified by the imprisonment of the railways minister for siphoning billions. Needless duplication, such as dozens of vanity airports built by competing cities, also represents wasteful spending due to chaotic fiscal systems. The era of breakneck infrastructure spending is concluding as investment returns decline and the economy shifts towards services. The challenge now is to adapt to a 'post-infrastructure economy' where the focus shifts from constant new construction to optimizing existing assets, a significant shift for a system that rewarded visible construction achievements.