Friday, August 03, 2007
Minneapolis Warning and China's Challenge
“We have a major infrastructure problem in this country,” said Maureen L. McAvey, an executive vice president with the Urban Land Institute, which recently published a report on global infrastructure issues. “The civil engineers have estimated that we have a $1.7 trillion shortfall in this country alone.”
Meanwhile, China is taking a different track. Ambassador Chas Freeman noted that the government in Beijing is
spending 9 percent of GDP on modernizing infrastructure in contrast to the United States which is spending less than one percent.
Infrastructure renewal is a key part of maintaining economic competitiveness. Right now we still have the option of drawing on our international credit card to borrow at low interest rates. But as long as Americans want to carry debt to facilitate personal consumption, we could end up in a few years with the double whammy of a strained infrastructure imposing higher costs while trying to deal with a mountain of debt that precludes our ability to get additional capital.
Bridges just aren't something they care about over at the Hudson Institute, AEI, or Heritage.
1. The disparity in infrastructure investment may indeed be real and of a scale that the US 1% - China 9% comparison suggests. However, there is no way of being sure of the existence and magnitude of the infrastructure gap until the basis of the comparison is properly defined. For instance, does the Chinese figure (as I suspect) include state investment in electricity and telecommunications? You are talking about two nations where infrastructure is still owned and operated differently in many areas. Moreover, the Chinese economy is a rapidly growing emerging economy, where new and additional investment in public transport, utilities, irrigation, etc. is of the highest priority, whereas the needs in the US are, relatively speaking, more maintenance than new construction.
This does not mean that infrastructure investment in the US (or, for that matter, China) investment is at an optimal level. However, the comparison as it is illustrates, but illuminates not.
2. According to Mr. Freeman, "[i]n 2005, China committed $8 billion to Nigeria, Angola and Mozambique, almost four times the World Bank’s contributions to all of Africa. Chinese loans to Africa are three times the amount that comes from OECD countries, and have no strings attached."
But according to the World Bank, "IDA funding in fiscal year 2006 of US$1.2 billion in grants and US$4 billion in credits represented a doubling of aid from fiscal 2000. Disbursements of US$3.5 billion in fiscal year 2006 represented an increase of more than 100 percent. IDA funding commitment for 2007 is expected to reach another record US$5.5 billion or 50 percent of IDA resources." These single-year commitments and disbursements are far larger than the $2 billion figure derived from the Chinese loan (?) package that is surely a getting-to-know you multi-year commitment whose disbursement will take some time.
The WB also tells us that "[a]t the G8 heads of state summit at Gleneagles in mid-2005, the world’s eight richest countries pledged to double development assistance to Africa – from US$25 billion in 2004 to US$50 billion per year by 2010." Since it is unlikely that Russia is providing the bulk of this money, I am sure that the commitments from the larger OECD member countries far outstrip the amount of Chinese loans to Africa.
Even disregarding the role of other official flows and private sector funds from OCED member countries, the narrative provides a highly exaggerated image of the African presence of the Chinese government.
I point these out because dramatic numbers used as rhetoric tend to replicate through narratives that give even less of an idea of what the figures actually meant in the first place.