China can help Biden ‘build back better’ and boost US infrastructure

Seeing infrastructure as a dimension of competition with China is misguided
The US could instead tap Chinese firms, which have strong technical capabilities and financial backing, to handle infrastructure projects

Winston Mok

Published: 10:00pm, 9 Mar 2021

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Just as US President Joe Biden has made infrastructure a top priority, the power outages in Texas poignantly brought home the urgency. In the latest 2021 Report Card on America’s Infrastructure released last week, the United States finally broke out of the D grade it had been stuck in for decades to attain a “C-”. Among the categories, the country scored the lowest grade of “D-” in public transit.

In contrast, China continues to expand its transport infrastructure at all levels: urban (subway), regional (intercity rail, highways and bridges), national (high-speed train and airports) and international (international high-speed rail, overseas ports).

It is difficult for a large country to develop and maintain good infrastructure. Those with the best infrastructure tend to be city-states (Singapore), small (Switzerland, the Netherlands) or densely populated (Japan and South Korea).

Ranked 13th globally by the World Economic Forum for infrastructure, the US may find consolation in its lead among large countries. However, given that the US was ranked among the “most prepared” to respond to a pandemic before Covid-19, it should guard against false confidence. Texas awarded itself a “B+” in energy while people froze to death due to its failed stand-alone power grid.

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Much of the US’ ageing infrastructure was built in the period from the presidency of Franklin D Roosevelt to Eisenhower’s. The share of federal funding for US public infrastructure investment, declining since Ronald Reagan’s days, stands at only 25 per cent today.

For all the campaign promises of the “builder president”, Donald Trump showed the greatest interest in the high-speed rail link between Los Angeles and Las Vegas. He demanded California return US$3.5 billion in federal funding granted during the Obama years for its bullet train after delays in the construction of the San Francisco to Los Angeles system.

To address a growing gap of US$2.6 trillion in this decade, Biden’s US$2 trillion infrastructure plan may seem large but is only half the size of the two major stimulus packages combined: the US$2.2 trillion CARES Act last year and the US$1.9 stimulus package which the Senate just passed.

While there has been bipartisan support for infrastructure in principle, there is no agreement on what should be included (for example, climate-focused), where (urban versus rural), who will pay for it (federal versus state) or how it will be financed (tax increases versus private investments). Even for something as foundational to its long-term future, progress eluded both Barack Obama and Trump in a system geared more towards partisan fights than addressing long-term issues.

A commuter enters the metro station in Washington on April 24, 2020. A report on US infrastructure gave the country a D- grade for public transit. Photo: AFP

The recent failures in the Lone Star state, whose “independent” power network is not subject to federal regulations, epitomised the problematic federal-state relationship when it comes to infrastructure in the US. It is difficult to coordinate interstate infrastructure in such a decentralised system.

The US relies heavily on cash-strapped and indebted state and local governments to finance its infrastructure. They are often bogged down by short-term financial pressures instead of addressing long-term problems.

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Seeing infrastructure as a key dimension of competition with China is to frame the issue wrongly. The US’ key challenges are mainly internal decline and divisions, not “the other”.

Forward-looking China paradoxically compares itself primarily with its past rather than any contemporary peer. While the US wants to keep China down, China is unafraid to build the US up.

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There are two ways to look at the US-China relationship. The first is win-win. As long as both parties are better off, their relative sizes don’t matter much. The second is lose-lose. The key goal is to contain China at all costs, even if the US were far worse off for it.

It may be a bit late for the lose-lose approach. China surpassed the US on a purchasing power parity basis in 2017. Having grown despite Covid-19, China’s economy is expected to surpass the US in nominal GDP within this decade, although this will be difficult to achieve. With four times the population of the US, China produces a lot more engineering graduates every year. Why should China’s hardworking people be condemned to an income level forever less than a quarter of Americans’ just because they happened to be born in country with a lot of people?

Surrounded by ocean to the east and west, it is a stretch to say China is a threat to the US. What is being threatened is unrivalled US hegemony.

Biden’s plan to ‘gang up’ on China could backfire on the US

As no country has unlimited fiscal resources, good governance requires wise allocation. As a percentage of GDP, the US spends 50 per cent above the world average on defence, but around one third below world average for infrastructure. Other than Middle-Eastern countries and Russia, no major state allocates more of its GDP to military spending than the US.

Instead of wasting lives and funds on repeated failure from futile meddling in other countries’ affairs, Washington should perhaps prioritise helping its own people. The US has been investing a declining share of its GDP (2.3 per cent in 2017) in infrastructure. Closing the infrastructure gaps would create 1.2 per cent more jobs. Not doing so could lead to 3 million lost jobs by 2039.

A man protests against Florida’s unemployment benefits system last year. Closing the infrastructure gaps would create 1.2 per cent more jobs. Photo: Getty Images/TNS

In addition to tax increases, foreign capital is an alternative source of infrastructure funding. Developing countries have long funded infrastructure through foreign direct investment. Until 2019, the US has been the world’s top FDI destination. Perhaps a bit more of that FDI may be directed to infrastructure.

While unthinkable for Washington, China can be a win-win partner for the US to build back better. For infrastructure projects, Chinese firms have strong technical capabilities and financial backing.

China can diversify its US asset holdings from Treasury bonds to infrastructure investment. China should not be reluctant to reciprocate US largesse during China’s imperial and republican eras – by helping rebuild the US.

Winston Mok, a private investor, was previously a private equity investor