Tuesday, March 17, 2009

More on Infrastructural Development: China's Savvy Policy

Today’s New York Times says that China is using the occasion of the downturn to invest in infrastructure. And I found a note by Matthew Argersinger in an article [March 11, 2009] in the Motley Fool [!] on the ratio of benefit to highway construction: $5.4 to $1. That is a fishy number, of course, [I know economists believe these things] but it does emphasize the point that China’s policy makers are making a savvy investment in future development.

Here is what the original articles say:

The Times: “China’s leaders are turning economic crisis to competitive advantage, . . . The country is using its nearly $600 billion economic stimulus package to make its companies better able to compete in markets at home and abroad, to retrain migrant workers on an immense scale and to rapidly expand subsidies for research and development. Construction has already begun on new highways and rail lines that are likely to permanently reduce transportation costs. “

The Motley Fool: “China has a lot going for it right now. While slower than previous years, China's GDP is still set to grow by 6% in 2009. Compare that to the U.S., where GDP is expected to decline. And unlike our stimulus bill, which sets aside only $111 billion for direct infrastructure spending, China is going to spend the bulk of its world-changing $586 billion stimulus plan on infrastructure projects.
“Why is that an important distinction? Infrastructure spending is an efficient way to stimulate the economy and build long-term growth. For example, studies show that every dollar spent on highway construction delivers $5.40 in economic output. And while the U.S. stimulus bill includes less than 1% of GDP worth of infrastructure spending, China's mostly infrastructure-related stimulus package makes up 13% of its GDP. That's some powerful stimuli, and I believe it almost assures that China's growth will be faster and more durable than our own.”

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