Is Transportation Infrastructure the Secret to China’s Success?

According to a recent study, the Chinese government spends more money on infrastructure every year than North America and Western Europe combined.

Global management consulting firm McKinsey & Company found that China has consistently invested heavily in roads, rails, and ports, perhaps indicating that the country will be prepared given advantageous changes in the global economy.

chin“Infrastructure investment has actually gone down in half the G20 economies,” explained Jan Mischke, senior fellow at McKinsey Global Institute. Mische worked on the report and found that the downturn in infrastructure investment is likely rooted in the great recession of 2009. That said, the economic down turn of the last decade has done little to slow China’s infrastructural expansion.

According to McKinsey Global Institute, China spent 8.6% of its GDP on building roads, railways, airports, seaports, and other key development projects spanning from 1992 to 2013. These investments are all part of an effort by the country to make people and goods easily transferable throughout the nation, strengthening China’s economy. In the same amount of time, Western Europe, the US and Canada all spent somewhere closer to 2.5 percent of their GDP on similar projects. The Western countries can barely keep old cars off the road, much less create new roads. 

“The report is an important wake-up call about the perils of under-investment in infrastructure,” offered Robert Puentes, a senior fellow specializing in metropolitan policy at the Washington-based think tank, the Brookings Institution. “The super-charged growth in China’s economy is fueled by these investments in infrastructure.”

In Europe and North America, aging infrastructure is quickly becoming a major problem. The US Department of Transportation released a study finding that over 61,000 bridges in America are “structurally deficient” just last year. In 2013, the UK government put forward a 100 billion bound infrastructure plan, adding that the UK had “for centuries been pioneers in infrastructure” but in recent decades “let this proud record slip.”

chinaThat said, the infrastructural challenges of America and Western Europe differ greatly from those of countries like China and India, where emerging and quickly expanding markets are calling for entirely new infrastructure to be built as opposed to re-built like in the Western nations.

In addition, many of the Western nations spend their money on programs that are absent from China and India.

“If the US spent zero on Social Security and defense, the percentage of the total that goes [toward] infrastructure would be higher,” pointed out Puentes.

Jan Mischke believed that the wide divide could also be attributed to the fact that while the US doesn’t spend enough on its infrastructure, China also spends entirely too much:

“China has actually invested much more than needed, and the US, much less than needed,” he explained. “Despite this overinvestment, China’s needs  for the future remain vast. The key opportunity for China is to deploy capital to more productive areas like research and innovation, and to raise efficiency and effectiveness of spending.”

China is home to the world’s first maglev train, a public transportation vehicle that uses magnetic levitation instead of wheels for a friction-less speed unattainable by wheeled alternatives. The maglev train’s top speed is 267 miles per hour and, astonishingly, has been running since 2004.

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