The white elephant in the room

Study shows excessive infrastructure investment negatively impacts economy The white elephant in the room Study shows excessive infrastructure investment negatively impacts economy Whether China'slargely State- driven infra- structure construction is excessive is always a topic subjected to vehement debate at home and abroad.迷你倉 A recent study of ered a new clue to the answer.h e study, commissioned by the Shanghai-based SIFL Institute and led by two researchers with the Antai College of Economics and Management of Shanghai Jiao Tong University, touched upon the issue by comparing China'sinfrastructure investment with its private productive capital.h e study is built upon an assumption that there is an opti- mal allocation between the infra- structure investment and private productive capital. Any deviation from the balance leads to ei ciency losses, thereby resulting in losses in GDP.Huang Shaoqing and Shi Hao analyzed China's investment data during 1985 and 2011. In their calculation, infrastructure includes electricity, gas, water, transporta- tion, warehousing and postal, water conservancy, environment and public utilities and informa- tion transmission. h e remainder is counted as private productive capital.h e study found the largest loss occurred in 1997, when infrastruc- ture investment was severely inad- equate, causing losses amounting to 2.58 percent of GDP that year.h is means that factor input could have generated more GDP if infra- structure and private productive capital went hand-in-hand.Since 1998, the government has ramped up infrastructure invest- ment by issuing bonds. h e loss because of insui cient infrastruc- ture investment has been gradually alleviated. In 2003, the cost was reduced to 0.64 percent of GDP that year.h e trend, however, has reversed since 2003. From 2003 to 2008, costs resulting from excess infra- structure investment in economi- cally underdeveloped regions and insui cient investment in most developed coastal economies kept rising, reaching 1.31 percent of GDP in 2008.At the end of 2008, China decid- ed to roll out a large-scale stimulus package to avert the contagion ef ect of the global i nancial crisis.In the following two years, much of the credit spree l ooded the infra- structure sector.In other words, the infrastructure spending spree happened at a time when infrastructure in most regions was already over-built. Hence, the ratio of GDP losses has steadily risen from 2008's 1.31 percent all the way up to 2011's 1.85 percent —872.4 billion yuan ($135.3 billion).A more accurate scenario of the losses is seen in the regional break- down. h e study showed though infrastructure investment is gener- ally appropriate, in some eastern regions even 儲存lightly insui cient, investment in western regions was generally excessive compared with private capital.For example, Beijing and Fujian province's ratio of GDP losses in 2011 are among the lowest, showing they have a relatively good balance between infrastructure and private productive capital. Jiangsu's infra- structure investment is inadequate, causing losses of about 4 percent of its GDP in 2011. Central Henan province's infrastructure investment is also inadequate, causing a 3.42 percent toll on its GDP. Zhejiang province's infrastructure investment is slightly inadequate, with a 0.25 percent toll on GDP.However, in the vast central and western regions, excessive infra- structure investment is a common scene. Excess is particularly severe in Yunnan, Guizhou and Qinghai provinces. h e Inner Mongolia autonomous region, the Guangxi Zhuang autonomous region and Gansu province have long seen excessive infrastructure investment, but the loss narrowed in 2011."Infrastructure investment cre- ates both demand and supply in economics. But the problem is, in most hinterland regions, its func- tion is overwhelmingly regarded by local oi cials as creating short-term 'demand'," said Huang.h e expense of this shortsighted- ness is that the massive infrastruc- ture investment's role in improving the long-term supply ability is ignored."Local oi cials simply assume that government's input in infra- structure would spur the private sector's investment, thereby gener- ating i scal revenue for local gov- ernments to recover their costs,"said Huang. "But that linear devel- opment is not necessarily going to happen."According to Huang, it is rea- sonable for China to adopt an "infrastructure going ahead" strat- egy in its go-west campaign. h e problem, however, is the break- neck infrastructure investment pace has not been followed with industrial investment growth, pri- marily led by the private sector."Western regions have been desperate to scale up infrastructure investment, but improvement in infrastructure is not accompanied with improvement in governance and investor environment. h is has made them less attractive to private investors and failed to generate revenue from their infra- structure investment," Huang said.If the government's input failed to attract follow-up private produc- tive capital, it risked accumulating "white elephants" and lead to debt crisis. Huang's study found that although in most provinces govern- ments could repay their debts with additional revenue from additional industrial capacity in the next 30 years, i ve regions might fail to repay their debt by 2039. h ey include Qinghai, Xinjiang, Yunnan, Guizhou and Inner Mongolia.Contact the writer at zhengyangpeng@chinadaily.com.cn新蒲崗迷你倉