Quote of the Day: The Unintended Consequences from China’s Infrastructure Spending

Why aren’t China’s leaders spending much more as they did in late 2008 and 2009 to boost economic growth? It might be because much of what they built was defective as a result of widespread corruption. The 8/4 issue of the London Times reported there were 99 road cave-ins in Beijing between July 21 and August 21 of this year. Roads and bridges are collapsing in other cities as well. Most are relatively new including a bridge that was built just 10 months ago.

The country's former railway minister, Liu Zhijun, was expelled from the Communist Party of China for corruption in May following the high-speed train collision that left 40 people dead and 172 injured near the eastern city of Wenzhou last year. In March of this year, part of a high-speed railway line due to open in May between the Yangtze river cities of Wuhan and Yichang collapsed after heavy rain. Engineers working on some projects have complained of problems with contractors using inferior concrete or inadequate steel support bars. Consider this excerpt from the 2/17/11 issue of the NYT:

“The statement underscored concerns in some quarters that Mr. Liu cut corners in his all-out push to extend the rail system and to keep the project on schedule and within its budget. No accidents have been reported on the high-speed rail network, but reports suggest that construction quality may at times have been shoddy. A person with ties to the ministry said that the concrete bases for the system’s tracks were so cheaply made, with inadequate use of chemical hardening agents, that trains would be unable to maintain their current speeds of about 217 miles per hour for more than a few years. In as little as five years, lower speeds, possibly below about 186 miles per hour, could be required as the rails become less straight, the expert said. Strong concrete pillars require a large dose of high-quality fly ash, the byproduct of burning coal. But the speed of construction has far exceeded the available supply, according to a 2008 study by a Chinese railway design institute.”

This is from Dr. Ed Yardeni on China’s slowdown.

China announced last week a 1 trillion yuan $157 billion infrastructure spending program which is much less than the 2008-2009 version.

Nonetheless, the above serves as further proof that infrastructure spending projects by governments, not only waste taxpayers money, but importantly promotes unethical transactions which results to MORE economic and social problems.