Monday, January 13, 2003
Pacific Currents: China's risk may build Great Wall --
of debt
By JOSEPH KAHN
THE NEW YORK TIMES
CHONGQING, China -- The engineers who run China have designated this congested
southwestern city, cupped by the Zhongliang Mountains and divided by flood-prone rivers, as their
nation's new Chicago.
Construction crews have carved a small canyon i n the center of town, where they are burrowing
through mountains to create 600 miles of superhighways, four new railway lines, an urban light rail
system and a new airport. Chinese officials are also promising parks, drinkable tap water and
riverside promenades for the city's 30 million residents.
The cost of remaking Chongqing into a metropolis and a transportation hub in China's heartland is
estimated at $200 billion over the next decade -- most of it shouldered by the government and
state-owned banks. It's a bit more than the U.S. Congress spent, in adjusted dollars, to build the
U.S. interstate highway system in the 1950s.
China's top leaders, many of them trained in the mechanical sciences, are not just making mountain
cities into transportation hubs. They also want to pump 48 billion cubic meters of water each year
from south to north, transport natural gas from Central Asia to China's southeast coast, and
construct the world's largest dam, longest bridge, fastest train and highest railroad.
Even more than modernizing its infrastructure -- or, as some critics see it, erecting monuments to its
emerging might -- China is desperate to keep the economy growing quickly. Over the past few
years, it has reached deep into the national treasury to finance projects that it hopes will create jobs
and stimulate enough growth to ensure social stability and keep the Communist Party in power.
As a new generation of leaders takes control, China is using heavy government investment to
escape the worldwide slowdown and maintain growth above the 7 percent level that the government
deems crucial to avoiding mass unemployment and urban unrest.
The plan has worked, so far. China last year reported defiantly robust growth of 8 percent,
attributed to surging exports and a nearly 25 percent increase in state-directed investment.
But the strategy is risky. The once fiscally prudent central government is now running hefty budget
deficits. State banks, told a few years ago to clean up bad loans and begin acting like capitalist
lenders, are pumping tens of billions of dollars into officially sponsored projects that have
sometimes failed to produce real returns.
The Communist Party has pledged to support private companies and allow the market to flourish.
Financially, though, the authorities are monopolizing the country's private savings for a building
boom that dwarfs the U.S. New Deal and the Marshall Plan.
"The country has relied very heavily on government investment to lead the economy," said Shen
Lishen, a top economist at the Chinese Academy of Social Sciences. "It really should begin to fade
out, not become part of the long-term economic plan."
Beijing opened its coffers to stimulate growth in 1998, when it feared that the financial contagion
spreading around Asia would infect China. Instead of fading out, the spending is getting more
ambitious.
The government, state banks, and companies and foreign investors collectively spent $200 billion in
the first 11 months of last year on basic infrastructure projects, one quarter more than they spent in
2001, according to the State Statistics Bureau. That represents about 15 percent of China's gross
domestic product, or about the proportion that the United States spends on health care.
Even for the nation that built the Great Wall, the scale of construction is extraordinary.
"The government is sucking up savings and investing in the future," said Andy Xie, a regional
economist for Morgan Stanley. "The financial returns on these kinds of investments are low. But
the payoff for the economy is high."
Fred Hu, chief China economist for Goldman Sachs, agrees. He argues that as China suffers
through a period of falling prices and low consumer spending, Beijing is right to inject money into
the economy.
"This is China's New Deal," Hu said. "Every problem is easier to solve when growth is faster." |
