The great China infrastructure build-out is almost over

I was in Fujian province in China a couple weeks ago and on the drive from Xiamen to Zhangzhou I looked out the window and marveled that probably 90% of the built environment — roads, bridges, factories, ports, residential towers, shopping malls, etc — was constructed in the last ten or twenty years.  On the drive back to Xiamen, I realized what was missing: construction, which had been the defining characteristic of the Chinese landscape on every visit I’d made since the early-1990s.  Simply put, the great build-out of modern infrastructure in China has (mostly) happened already.

In this, Fujian is a perfect leading indicator: as a coastal province just opposite Taiwan, Fujian was one of the first regions of China to open up to foreign investment so it boomed before most of the world even realized the China boom was on.  And now, unmistakably, Fujian is moving into a new phase, one that the rest of the country will follow.  Sure, there were a few residential towers going up on the outsized scale of a Burtynsky photograph, but they were now on the outskirts of town not in the city centers; there was a partially built highway, too, but it was just a bypass connecting two major roads of recent vintage.  For a country that until recently was tearing down entire districts of its major cities a couple miles at a time, that turned rice paddies into factory towns in under a decade and drove up prices worldwide because of its voracious demand for basic materials, a couple apartment buildings outside town and a short stretch of highway constitutes a massive deceleration of infrastructure development.  Granted, most China watchers right now fear the economy is overheating and, indeed, in Fujian price inflation is rampant, driving the many Taiwanese-owned factories to cheaper inland provinces or places like Vietnam with lower wage costs.  But look past that inflationary period — as Nouriel Roubini does in a similarly contrarian piece today about China — and what is happening now in Fujian suggests a looming, once-in-a-generation shift in the composition of China’s economic growth.  Of course, China will keep building some infrastructure, much as the US and Europe still do, but the physical transformation from a rural, peasant economy to an urban, industrial one will soon plateau and growth will be driven by consumption from then on.  More on that in a future post.

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2 Responses to “The great China infrastructure build-out is almost over”

  1. Cas_eindhoven says:

    So you think it’s finally happening?  Maybe along the coast, but I wonder if there isn’t another round (or two!), lasting another three decades, for the hinterlands!

  2. Mike Smitka says:

    The highway system and subway system in coastal cities — yes. But there’s still another 25% of the population that will move to towns and smaller cities, with accompanying housing, schools and so on. That however will be less central and provincial government and more local government and private development. Of course (cf Japan in the 1960s) this will continue to provide lots of employment, ditto all the companies making consumer durables to fill these new abodes. Refrigerators, washing machines, air conditioners, tables & beds …

    Now eventually the demographic dividend (low dependency ratio) will disappear — the working age population will peak ca. 2015 — the capital stock will deepen and the economy will shift from catch-up to caught-up mode in business practices and other productivity enhancements. The latter two processes have a ways to go while migration will offset demographics for a while.

    That doesn’t mean there won’t be a recession or two along the way. The last bad one was one contributing factor to Tiananmen in 1989. Next time? — but I’m an economist, not a political scientist.

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