China’s age of construction is far from over, given the need for infrastructure to improve quality of life and revive the economy
- While infrastructure investments once centred on the export economy, a shift to improving lifestyles can boost consumption and help Beijing achieve its dual circulation goal
- There is still a huge need for less-crowded housing and classrooms, new water supply systems and decarbonisation technology
May brought sobering news for China’s economy. Investment spending represents close to half of China’s GDP, and is elevated by the real estate sector, which some scholars suggest drives nearly a third of economic activity.
But those who say China’s age of construction is over should consider the country’s still-vast need for new infrastructure. A few choice capital investments can help rebalance the economy away from investment spending in the long term, towards the goal of consumer-powered “internal circulation”.
Overreliance on exports and investment spending brings risks. Ploughing resources into construction, while normal consumers have little money to spend, is likely to lead to wasteful investments.
Depending on exports means relying on gains in purchasing power in China’s main export markets, like the US. At some point, China will feel pressure to pivot to relying on an active consumer economy to generate demand and propel new growth.
Many past major capital investments – in factories, shipbuilding and ports, for instance – have benefited industrial exporters. Yet there remain many underappreciated potential investments that can quickly benefit average households.
By improving quality of life and creating efficiencies for citizens, China could help unleash greater consumer spending, sustain new service businesses and ensure that the workforce grows more productive even as it ages.
Yet China’s investments in water, environmental and public facilities management grew only 0.2 per cent in 2020. Fiscal attention should be focused in particular on urban areas. China is among a shrinking number of countries in Asia where urban residents lack access to high-quality tap water.
Between the 1960s and 1990s, Seoul built purification plants that guaranteed decades of cheap potable tap water to residents. With reallocated spending and the benefit of new technology, China could achieve such milestones in a much faster time frame.
China still has a great need for construction that supports more “mundane” public services. Covid-19 has emphasised the world’s need for better health infrastructure. In China, regional disparities in medical resources remain large.
In 2019, annual healthcare spending was around 4,000 yuan per person in Beijing, while in rural parts of Guizhou or Yunnan, it was below 1,000 yuan a year. The gap extends to buildings and equipment.
In 2020, Beijing (with a population of 22 million) had roughly as many specialised hospitals as Heilongjiang, Chongqing, Fujian, Jiangxi or Guangxi (each with populations of 30-50 million). Likewise, Beijing has more community health service centres than 19 other Chinese provinces or regions.
China has similar potential to improve education infrastructure. Even in wealthy coastal cities, many teachers and students hold classes in ageing facilities with limited ventilation and temperature controls.
In many counties and lower-tier cities, students have to contend with crowded facilities. In 2020, Beijing schools reported an average of 29 students per class for the last year of secondary school; in Henan and Guangxi, that figure was over 50 students per class.
Existing housing could be updated and better utilised. Many older buildings are poorly suited for the elderly or people with disabilities. Construction and renovation geared towards these sectors would foster a fairer society better prepared for demographic shifts.
Existing well-equipped facilities tend to be in wealthier areas; for example, Beijing has more beds in elderly care institutions than 15 other regions of China.
The average Chinese city-dweller has around 40 sq m of home space – some 10-20 per cent less than the average person in New York City. Crowded housing is not an inevitable fact of urban life: Manhattan today has far more skyscrapers but almost 30 per cent fewer people than in 1910.
Why middle-class growth, consumption are key to China’s economic success
Large Chinese cities have many opportunities to upgrade existing housing or convert underutilised buildings into larger flats. Doing so could raise quality of life and motivate consumer activity. The need and potential are greatest among the millions of migrant and working-class families.
Of course, it is always possible to build too much of a good thing. Urban planners should be careful not to create schools and hospitals at scales and in locations where they can never be properly used. But amid the recent lockdown stresses, China has a chance to revive construction and equitably rebalance the economy at the same time.
These goals could be achieved by prioritising investments that focus on supporting broad public services, lifting household living standards, and creating infrastructure from which the poor and middle classes can quickly benefit.
Richard Yarrow is a fellow in the Mossavar-Rahmani Center at Harvard Kennedy School and a visiting research fellow in the East Asian Institute at the National University of Singapore