1/9
Very interesting article. It seems pretty clear that the point of massively expanding China’s transportation infrastructure over the next 15 years has more to do with the goal of doubling reported GDP over the period than with improving the...
scmp.com/economy/china-…
Very interesting article. It seems pretty clear that the point of massively expanding China’s transportation infrastructure over the next 15 years has more to do with the goal of doubling reported GDP over the period than with improving the...
scmp.com/economy/china-…
2/9
economic efficiency of Chinese transportation. China probably already has the best transportation network in the world for its level of development, and almost certainly a more expensive transportation network than is productively justified.
economic efficiency of Chinese transportation. China probably already has the best transportation network in the world for its level of development, and almost certainly a more expensive transportation network than is productively justified.
3/9
In that case there are at least three important concerns with this strategy. The first and most obvious is that the doubling of GDP will necessarily involve overstating the comparable value of GDP, so that it becomes a meaningless proxy: GDP may double temporarily, but...
In that case there are at least three important concerns with this strategy. The first and most obvious is that the doubling of GDP will necessarily involve overstating the comparable value of GDP, so that it becomes a meaningless proxy: GDP may double temporarily, but...
4/9
the economic value of goods and service produced by the economy won’t.
A second – less obvious but more dangerous – problem is the amount of pro-cyclicality this type of investment tends to embed in the real economy. The faster the real, underlying economy...
the economic value of goods and service produced by the economy won’t.
A second – less obvious but more dangerous – problem is the amount of pro-cyclicality this type of investment tends to embed in the real economy. The faster the real, underlying economy...
5/9
grows, the more upward pressure this infrastructure spending puts on growth, but of course the slower it grows, the greater the downward pressure. And we know from the historical precedents that this pro-cyclicality works more powerfully on the way down than on the way up.
grows, the more upward pressure this infrastructure spending puts on growth, but of course the slower it grows, the greater the downward pressure. And we know from the historical precedents that this pro-cyclicality works more powerfully on the way down than on the way up.
6/9
Finally, to the extent that the cost of building the transportation network exceeds the real economic benefits to the Chinese economy, the difference must be paid for explicitly or implicitly by transfers from another sector of the economy. If the household sector ends...
Finally, to the extent that the cost of building the transportation network exceeds the real economic benefits to the Chinese economy, the difference must be paid for explicitly or implicitly by transfers from another sector of the economy. If the household sector ends...
7/9
up effectively subsidizing the cost, as is most likely, this makes it more difficult than ever for domestic Chinese demand to rebalance towards consumption, which puts further downward pressure on China’s contribution to global demand and greater strains on the...
up effectively subsidizing the cost, as is most likely, this makes it more difficult than ever for domestic Chinese demand to rebalance towards consumption, which puts further downward pressure on China’s contribution to global demand and greater strains on the...
8/9
global trading regime. This also makes the Chinese economy more vulnerable to trade pressure from the US and the world.
Of course if China’s infrastructure spending convinces the US to improve its own transportation infrastructure significantly, as it should, this will...
global trading regime. This also makes the Chinese economy more vulnerable to trade pressure from the US and the world.
Of course if China’s infrastructure spending convinces the US to improve its own transportation infrastructure significantly, as it should, this will...
9/9
be very positive for US growth and positive for global growth, and may even reduce the US trade pressure on China.
be very positive for US growth and positive for global growth, and may even reduce the US trade pressure on China.
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