China’s infrastructure push offers a sure track to better growth

By Frank-Jürgen Richter

South China Morning Post, December 18, 2014

Frank-Jürgen Richter says trade integration needs local infrastructure

China is busy developing new rail and river linkages. At a recent meeting in Wuhan , representatives from Europe, Central Asia and China met to discuss the strengthening of ties along the rail system – they wish to raise the frequency of pan-continental freight services.

For instance, Chinese goods rolled into Madrid early this month having travelled 13,000km from Yiwu, carrying toys and other Christmas goods, returning with wine, hams and olive oil: a good two-way trade clearly benefiting firms at either end of the line. Regular rail routes at present link Chongqing (with its auto industry) with Duisburg and Beijing with Hamburg, illustrating how rail can be a flexible system, reaching more destinations faster than a sea link.

What is missing is the quantity aspect: a “standard” train will carry only 30 containers – though some countries permit multiple engine units to push very long trains. In contrast, with little fuss, big ships haul up to 15,000 containers on regular timed services.

Given such figures, mayors along the Yangtze River have agreed to cooperate on the integration of road, rail and air transport, plus opening up their ports to redevelopment that will allow larger ships to pass further upriver.

However, generally, port throughput in China grew at a relatively modest level from January to October, according to Ministry of Transport data. Freight handled at the country’s major ports grew 4.6 per cent year on year over the first 10 months to nearly 9.3 billion tonnes, compared with a 9.9 per cent increase in the same period last year. The slowdown is an indicator of the country’s declining rate of foreign trade growth, which dipped to 2.5 per cent from January to October, from 7.6 per cent in the same period in 2013, as a result of the global slowdown.

Research shows that money spent on infrastructure is well spent. According to a World Bank survey, if Latin America’s infrastructure was as good as East Asia’s, countries with the worst roads and phones would see their annual growth rates increase by as much as five percentage points. Chinese economists are delighted by this and are extolling its development model to the rest of the world.

China spent 8.5 per cent of its gross domestic product investing in infrastructure from 1992 to 2011, according to the McKinsey Global Institute. That was more than any other country, and well above the developing-nation norm of 2-4 per cent of GDP. And, clearly, it looks “on track” to continue this expansion, and thus its potential for growth integration with the rest of the world.

Chinese growth is part of a globalised system. For China to grow, other nations must also invest in growth. But many nations are in recession or feeling the effects of government austerity measures.

India has great potential to trade more with China. China is already its top trading partner, just ahead of the US and the United Arab Emirates. But it has a chaotic transport infrastructure – a fact noted by Prime Minister Narendra Modi, who has pledged US$25 billion to improve all infrastructure, including opening up the Ganges, a fantastic but currently underutilised internal trade pipeline.

In poor developing countries, one of the best ways to boost rural wealth is to build cycle tracks, allowing families to get their produce to market more effectively. Cash accrues, better food become available and, with more bikes, children can get to central schools. Any spare cash might be invested in micro-finance schemes, further benefiting the region.

This mini-development model can be applied in cities or even nations – the plan simply has to be writ larger.

Without local infrastructure across the whole spectrum of human activities around Yiwu and Madrid, there would be no point linking the cities with trains: neither side would be rich enough to buy the goods. Infrastructure needs to be planned, incubated and developed from small beginnings to the globalised systems of today, all the while maintained and redeveloped. The alternative is to live sparse lives.

Frank-Jürgen Richter is founder and chairman of Horasis, a global visions community.