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About Those Better Roads in China

Wednesday, April 18, 2012

The president takes it as a given that Chinese infrastructure is better than America’s; the reality is otherwise.

In an address to a joint session of Congress, President Obama lamented that “building a world-class transportation system is part of what made us an economic superpower—and now we’re going to sit back and watch China build newer airports and faster railroads?”

The appeal to superior Chinese infrastructure being a manifestation of America’s ills—and Chinese economic might—is a familiar trope for the president. He made a similar argument in defense of the infrastructure investments contained in the original 2009 stimulus bill, as well as during the 2008 presidential campaign. The American Jobs Act of 2011 includes $140 billion of infrastructure investments, among them provisions to modernize schools, improve roads, and establish an infrastructure bank.

This appeal that we keep up with the Chinese begets two questions: Is our infrastructure really lagging that of China’s? And if so, should that be a motivating factor in how—and how much—we invest in infrastructure?

While the United States could (and should) be doing more to develop infrastructure, keeping up with China is not the reason for doing so; and China is actually far behind America’s level of infrastructure.

The Vaunted Chinese Infrastructure Lags the U.S.

While the United States has more than 15,000 airports, China has a mere 502. The U.S. railway system is three times the length of China’s.

While the president apparently takes it as a given that Chinese infrastructure is better than America’s, the reality is otherwise: U.S. roads, bridges, airports, and the like are leaps and bounds above what the Chinese have. A closer inspection reveals that China suffers from a serious lack of infrastructure that threatens to throttle their long-term growth prospects.

Although the population of China is four times that of the United States, it will be decades before China can construct an infrastructure comparable in scope to our own. For instance, while the United States has more than 15,000 airports, China has a mere 502. The U.S. railway system is three times the length of China’s, despite the fact that rail remains the dominant way for its citizenry to travel long distances. The length of U.S. oil and gas pipelines are an order of magnitude larger than what is found in China, which means that much more of their liquid fuels have to be transported over land, taxing their relative paucity of roads. Other important indicators, such as electricity production and the amount of paved roads, reveal similar disparities, as the table below suggests.

Brannon 3.27.12 2

Perhaps most tellingly, the vaunted Chinese investment in high-speed rail is now beginning to look less prescient and more problematic. A July crash that left 40 dead has led to further investigations, revealing that the haste in which these lines were constructed resulted in a plethora of shoddy construction, much of which will need to be fixed or replaced at considerable cost.

The Chinese are also discovering that the costs associated with constructing—and maintaining—high speed rail lines are pricey. The Economist reports that the total cost of their high-speed-rail lines may eventually total nearly $1 trillion, and China’s rail ministry currently has a deficit equal to $330 billion, or 5 percent of GDP.

Even when these railways are completed, the government’s obligations will not end. A study by the Center for American Progress notes that the popular Beijing-Tianjin line is losing more than $100 million a year.

What’s more, it is unclear whether the ridership will eventually develop for the bulk of the investments. Despite the extraordinary reduction in poverty throughout China, the vast majority of the country’s 1.3 billion citizens cannot afford to pay anywhere near the ticket prices that would be necessary for a high speed rail line to break even, preferring instead to take the cheaper and slower standard passenger rail lines and buses between the urban centers in the east and their homes in the rural countryside.

The Chinese investment in high speed rail represents an enormous gamble that could leave them burdened with maintenance and operating costs that dwarf revenues and crowd out other public investments for decades.

How to Finance More Infrastructure Investment

A closer inspection reveals that China suffers from a serious lack of infrastructure that threatens to throttle their long-term growth prospects.

However, if we’re going to let the notion of keeping up with our economic competitors be a motivating factor for investing in infrastructure, then we should take a page from Asia and Europe and imitate how they finance their investments. The trend around the world—even in the social democratic countries of Old Europe—has been to allow private entities to finance and manage airports, roads, bridges, and the like, a development that has been embraced across the developed world because it improves efficiency while lessening the pressure on government coffers.

The White House could be more aggressive in attracting private investment in our roads, bridges, and airports. Such an effort need not include the president’s “infrastructure bank” proposal but would instead allow private entities to lease, improve, and monetize public properties. It is a method that is now common in the rest of the world. Airports run by private concessionaires are the norm in Europe and elsewhere, for example, and typically result in cleaner, more comfortable airports with a wider variety of concessions that simultaneously appeal more to the traveling public and generate more revenue for the leaseholder than is possible were it to be run by a government bureaucracy.

Roads and bridges are also commonly managed by private operators throughout the world, who earn a return by charging tolls. The value added for consumers is that, increasingly, the tolls are levied so as to minimize congestion on the roads, resulting in vastly faster traffic as well as a marked reduction in emissions. Indiana Governor Mitch Daniels leased the state’s portion of the Tri-State toll way to a foreign operator, a move that was massively controversial at the time, but has proven to be a godsend for the state’s finances—as well as the governor’s popularity—when it dawned on Hoosiers that the state obtained billions of additional dollars for infrastructure improvements at no cost to them.

Such opportunities are less common these days than they should be, because public unions fear a loss of jobs with private infrastructure investments and so bitterly oppose them. Current federal law also creates high hurdles for such investments. For instance, the current highway bill only allows a handful of interstate tolling projects, and influential politicians like Senator Chuck Schumer have let parochial interests get in the way of introducing market mechanisms to generate revenue and improve efficiency in our nation’s airports.

There is a conspicuous lack of enthusiasm for these projects on the Republican side of the aisle as well. Despite the party’s normally pro-market leaning, there is a fear of alienating voters unaccustomed to paying tolls for congested roads they currently ride on for free.

The vaunted Chinese investment in high-speed rail is now beginning to look less prescient and more problematic.

If the president embraced a market approach to infrastructure investment, it could give Democrats in Congress political cover to do likewise and disobey their union supporters while forcing Republicans to support Obama or look deliberately obstinate—breaking a years-long logjam and opening the door for a market increase in public investment at no cost to the taxpayer.

A Show of Presidential Leadership

The United States could use more investment in infrastructure, and it is time our country had a debate about such things. In particular, we should decide who should be doing it—whether the federal government, the states, or private entities—as well as how to fund these investments.

It would be controversial for the president to initiate such a debate, but it would also be one that Republicans would have trouble reflexively opposing.

But merely calling for more government-directed deficit spending on infrastructure, and using the false specter of Chinese infrastructure superiority as a bludgeon to get it, is not leadership. Nor does it promise a path out of our economic malaise.

Ike Brannon is director of economic policy at the American Action Forum, where Matt Thoman is coordinator of economic policy.

FURTHER READING: Brannon and Thoman also write “Why Unemployment Is Worse Than You Think” and “European Disunion.” Brannon explains “The Upside of Voter ID Initiatives.” Claude Barfield contributes “The White House and Congress Repel Chinese Investment.” R. Richard Geddes describes “The Right Idea in the Wrong Place.” Michael Barone discusses “Traveling Back to the Future on Intercity Buses.”

Image by Rob Green / Bergman Group

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