Abstract
Particularly since the announcement in 2013 of China’s ambitious Belt and Road Initiative (BRI), infrastructure development has become one of the chief axes of competition between China and the West. Chinese infrastructure finance has gone from about 25% of total lending by international development institutions in 2002 to nearly 75% in 2016. The respective approaches reflect the broader development models of the two sides: China’s is heavily state-centric and draws upon the huge domestic construction industry that has fueled its own rise; Western approaches tend to be market-oriented and embedded in legal constraints designed to mitigate a host of environmental, social, safety, and other types of risks. There are systematic biases in both approaches. We find that Chinese project developers tend to overestimate the positive externalities and underestimate negative ones, reflecting their own domestic experience. This leads, on the one hand, to problems with fiscal sustainability, as well as negative environmental and social consequences. One of the consequences is a high level of non-performing loans, whose aggregate size may be approximated by the bailouts provided by the Chinese central bank to its development banks, the China Exim Bank and the China Development Bank. Western developers, by contrast, focus on internal rates of return, and place great emphasis on mitigating risk. This tends to lengthen the time to complete projects and increases their costs. This often makes their projects non-competitive when faced with Chinese competition. Efforts by the World Bank to revise its safeguards regime over the past decade do not appear to have mitigated this problem. The ideal approach to needed infrastructure projects lies somewhere between the Chinese and Western models: China needs to become more compliant with international standards, while Western development agencies need to adopt more realistic standards to meet a newly competitive infrastructure world.
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Notes
- 1.
Updated estimates for aggregate spending on HSR provided by Zhenhua Chen; we are grateful to the author for this information.
- 2.
These numbers are contested; there is consensus that there needs to be better data produced on migration and the number for Chinese workers in these infrastructure developments and more transparency regarding the terms of loans for infrastructure to guard against mounting unsustainable debt (Dollar 2016).
- 3.
China now tops the list of developing countries with the most public-private partnerships at 1,488 projects between 1990 and 2018 (World Bank PPI 2018). The top sponsors of these public-private partnerships include Beijing Sound Environment Industry Group in water and sewerage and Xinao Gas Holdings Limited in natural gas (PPI World Bank 2018). However, given the fact that Chinese SOEs and development banks are likely to be bailed out of bad investments, it is hard to know how what it means when the Chinese call something a “public-private partnership” how risks are being reallocated to project implementors.
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Fukuyama, F., Bennon, M., Bataineh, B. (2020). Chinese and Western Approaches to Infrastructure Development. In: Chen, Z., Bowen, W.M., Whittington, D. (eds) Development Studies in Regional Science. New Frontiers in Regional Science: Asian Perspectives, vol 42. Springer, Singapore. https://doi.org/10.1007/978-981-15-1435-7_14
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