Infrastructure investment: money well spent
The blizzards that laid waste to mainland China's railways, power stations and highways revealed chinks in the armour of a country whose infrastructure is considered among the best in the developing world. Under- investment in the vital rail and logistics network proved costly for the country, not only in terms of lost production, but in prestige ahead of the Beijing Olympics. Millions of stranded migrant workers, power blackouts and impassable highways are not the images the mainland generally projects.
Compared to the moribund road and rail network of emerging-market rival India, the mainland is generally praised for its solid commitment to infrastructure. Inadequate logistics infrastructure knocks an estimated 1 per cent to 2 per cent off India's average annual gross domestic product growth. By contrast, we are told, billions have been spent on roads, bridges and airports on the mainland, with more to come. That is a plus for foreign investors who may not trust the Chinese legal and political systems, but at least they can rely on its solid infrastructure.
Beijing is, no doubt, well chastened by the havoc caused by the worst snowstorms in 50 years and will press ahead with building bigger and better railways and power systems before the next big snowfall. But the problem highlighted the consequences of underinvestment and poor planning in infrastructure generally, not only on the mainland but around the world. Beijing at least has the excuse of having to cope with unprecedented growth, a huge landmass and the world's largest population.
For decades, governments in most parts of the world have been guilty of not building enough railways, roads, bridges, power stations and airports in the mistaken belief that they are being fiscally responsible and that big spending on infrastructure is wasteful.
Nothing could be further from the truth. They are actually costing their countries dearly in terms of lost revenue and investment. The old saying 'penny proud, pound foolish' has never been truer. If a factory owner neglected his equipment and machinery over decades, putting the money he should have spent on capital upgrades into a low-return bank account, would he be praised as a great entrepreneur? No - in fact the owner would probably have gone bankrupt as his ageing and decrepit factory failed to keep up with the competition.
Yet, governments around the world have been doing much the same thing for years. Often, the private sector has been invited to take over this vital nation-building role without any plan about how that could be done efficiently - a policy that has resulted in cost cutting and poor service standards.
In Australia, years of underinvestment in coal berthing and loading facilities have meant huge shipping delays as vessels line up outside the country's major ports. The government says backlogs on the nation's transport system are costing the country up to 0.8 per cent of GDP in lost production - about A$8 billion (HK$57 billion) a year.
Britain's crumbling transport system costs business up to #15 billion (HK$231 billion) a year, according to the British Chambers of Commerce. Declines in US productivity and poor economic performance in the 1970s have been linked to underinvestment in infrastructure.
Countries are better off preparing new infrastructure well before the communities that rely on it start to feel the strain. The earlier that the planning, funding and construction are done, the more effective they are. Too many governments wait until the pressure on existing roads, power networks and railways is starting to hurt productivity before even beginning the planning stage.
Spending on highways, airports, mass transit systems and water systems is not being fiscally irresponsible. It is an investment in future growth and quality of life. The poor souls who shivered through the Lunar New Year on the mainland would be the first to agree.
Glen Norris is a business news editor at the Post
