Ghost towns, empty airports, highways to nowhere – these are striking stories that often lead to concerns about China’s investment bubbles, NPLs/local government debt, and a banking or sovereign crisis in the pipeline.
No one would deny that some of the worries are justified. The massive CNY4trn investment spending package rapidly rolled out in response to the financial crisis, and the large build-up of local government borrowing through various investment vehicles, have unavoidably led to, in my view, or to some extent exacerbated, the situation of waste, inefficiency, resource misallocation that is naturally associated with public-driven investment.
On the other hand, it’s impossible to get a picture of China by looking at one city or region. China is a fast developing country with vast size and diverse regions at very different stage of development. The massive infrastructure investment in the past decade has undoubtedly improved business investment climate and national competitiveness. It is fair to say that China would not have become the world factory it is now or rank continuously among the top FDI destinations without this level of infrastructure in place.