China's stimulus spending created infrastructure projects that may not be needed

A man works at the railway construction site of Lanzhou-Urumqi express line in Hami Prefecture, Xinjiang Uighur Autonomous Region June 17, 2010. REUTERS/Stringer.
A man works at the railway construction site of Lanzhou-Urumqi express line in Hami Prefecture, Xinjiang Uighur Autonomous Region June 17, 2010. REUTERS/Stringer. (Stringer Shanghai - Reuters)
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By Keith B. Richburg
Washington Post Staff Writer
Friday, June 18, 2010

BEIJING -- In late 2008, with the financial crisis rippling through the global economy, China's leaders embarked on a two-year, $586 billion spending program to try to stave off a recession and keep the Chinese economy growing.

Unlike in the United States -- where President Obama's large stimulus plan became the subject of protracted congressional wrangling and was shaped to include tax cuts and aid to states -- Chinese leaders followed a simple mandate: Spend and build.

Forget the tax cuts; in China, it was infrastructure, infrastructure and more infrastructure.

China was already awash in big-ticket construction projects. The stimulus allowed China to speed up some projects, begin digging on others and extend the building boom to less-developed areas in the country's west and north. The result, 18 months after the stimulus was introduced, is an astonishing frenzy of building -- highways, subways, airports, bridges, high-speed rail lines and even new cities constructed, literally, in the middle of nowhere.

China is building tens of thousands of miles of expressways at a pace unseen since the U.S. interstate boom in the 1950s, and it is on track to pass the United States in total highways in the next decade. Among other infrastructure projects -- which now amount to 15 percent of China's gross domestic product -- are nearly 100 new airports, some serving isolated cities few outsiders have heard of, and dozens of subways.

"They basically got started about three months earlier than we did, and it was bigger," said Nicholas R. Lardy, an expert on the Chinese economy with the Peterson Institute for International Economics.

Now a year and a half into the spending spree, and with the stimulus set to end in just six months, many economists and others here are asking pointed questions: Does China really need all this infrastructure? And what's going to happen when the bills come due?

"In China, we have an old saying: 'If it's medicine, it will have some poison inside,' " said Guo Tianyong, director of research for the Central University of Finance and Economics. "So the stimulus must have some bad effects."

"You see little counties building airports -- how many people will fly there?" Guo said. "Small cities -- why do they need a subway? Maybe there's no market for all this infrastructure."

Several economists said it was difficult to determine the worth of all the spending because there is no official, centralized list of projects -- making it difficult to untangle whether projects are funded from stimulus loans, from local governments floating bonds or from some combination of the two.

"It's a black box financed by black laws," said Xu Xiaonian, an economics professor with the China Europe International Business School. "There's not enough information to make any sensible judgment."

But enough is known for economists to point to a crucial difference between the Chinese and American stimulus plans.

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