CHINA-ECONOMY: NATIONAL DEBT AND COST OVERRUNS IN INFRASTRUCTURE CONSTRUCTION
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A recent study by Atif Ansar, Fellow of Keble College and Programme Director of the MSc in Major Programme Management (MMPM) at the Saïd Business School, University of Oxford and Bent Flyvbjerg, the first BT Professor and inaugural Chair of Major Programme Management at Oxford University’s Saïd Business School and a Professorial Fellow of St Anne’s College, University of Oxford, claimed that in 2014, China spent US$4.6 trillion on fixed assets, accounting for 24.8 per cent of total worldwide investments and more than double the entire GDP of India. It said this coincided with a pile up in debt and between 2000 and 2014 China’s total debt grew from US$2.1 trillion to US$28.2 trillion, an increase of US$26.1 trillion (greater than the GDP of the US, Japan and Germany combined.). Analysing 95 large Chinese road and rail transport projects with 806 transport projects built in rich democracies, the study concluded that a typical Chinese infrastructure investment suffers cost overruns and benefit shortfalls so large that they destroy economic value. In China actual infrastructure construction costs are on average 30.6 per cent higher than estimated costs, in real terms, measured from the final business case. The evidence is overwhelming that costs are systematically biased towards underestimation. It also found that with respect to traffic performance, demand in China represents two extremes. A majority of the routes witness paltry traffic volumes but a few routes are highly congested. Too little and too much traffic of this magnitude indicates significant misallocation of resources. Commenting that China’s government is the second-most indebted in the world after Japan, it said the extraordinary monetary expansion has accompanied China’s piling debts — China’s M2 broad money grew by US$12.9 trillion in 2007–13, greater than the rest of the world combined -- resulting in increased financial and economic fragility. Assessing that China's SoEs may be tempted to raid small and individual savings with impunity because of the authoritarian regime, the study said China’s total per capita debt now stands at above US$20,000. It added the multiple of per capita debt to per capita annual income for China is 11.5, far greater than that of the US (7.5) or Brazil (8.1) and in line with that of Greece (11.8). This is worrisome as China has an ageing population with a relatively low level of wealth and China’s social safety net and pensions system are far less developed than in advanced indebted economies. The study said to prevent a stagnant economy requires China to become more productive with its investments.
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