Not a Model
Obama’s inexplicable admiration for China’s infrastructure policy.
Mar 24, 2014, Vol. 19, No. 27 • By YING MA
President Obama likes to promote his domestic policy agenda by highlighting economic competition from China. In particular, he has repeatedly pointed to China’s massive infrastructure investments to tout his proposals for infrastructure spending in America.
Second thoughts about the unintended consequences of China’s infrastructure boom and a new reform agenda have figured prominently in Chinese leaders’ recent rhetoric and policy priorities, but the American president appears oblivious to China’s actual experience. Announcing his new $300 billion infrastructure transportation plan in late February, Obama persisted in invoking China:
This harked back to similar rhetoric earlier in his presidency. For instance, in October 2010, the president said:
In the immediate aftermath of the global financial crisis, President Obama certainly was not the only one who was enamored of China. As the United States sought solutions for economic recovery and renewal, Americans of different political persuasions—ranging from business executives to political activists to pundits—admitted to being seduced by China’s economic success and “enlightened” leadership. The sharp contrast between the dumpiness of some American infrastructure, such as Los Angeles International Airport (LAX), and the new and shiny airport facilities in Beijing and Shanghai only enhanced China’s allure.
Since then, serious flaws have become apparent in China’s perceived infrastructure prowess. Grand projects were built at a feverish pace after the financial crisis, but not always with care and not always where needed: The boom created railways, airports, roads, and even entire cities that are rarely used or in the middle of nowhere.
To a large extent, the explosive infrastructure building was the result of a credit binge that the central government directed. In the aftermath of the financial crisis, China instructed its banks to unleash lending. In 2009 and 2010 alone, state banks issued $2.7 trillion in new loans. In comparison, America’s stimulus package clocked in at $831 billion. In the years since, as credit in the economy continued to grow, the Chinese government became increasingly alarmed about the risks that easy money posed to the overall health of the economy and has made repeated—though not always successful—efforts to clamp down on official and unofficial lending.
Meanwhile, concerns abound about the vast debt that China’s local governments have incurred and might not be able to repay. When China’s National Audit Office conducted an official tally last year, it found that local borrowing had skyrocketed to $3 trillion as of midyear 2013, a 67 percent increase from the total at the end of 2012.
President Obama seems eager to ignore the lessons learned from China’s infrastructure binge. In the beginning of his presidency, he regularly hyped China’s extensive and rapidly constructed high-speed rail system as an example for America to follow. A tragic high-speed rail accident in southeast China that killed 40 and injured about 190 passengers in 2011 put an end to the president’s advocacy on this front, but he remains unable to resist using the China example when pushing his broader infrastructure plans.
To be sure, China’s present troubles do not mean that investing in infrastructure as a public good is generally a bad idea. Nor do China’s woes make America’s infrastructure deficiencies any less problematic.
The broader irony is that Obama is expressing admiration for China’s state-directed government spending at a time when the Chinese leadership has pledged to undertake market-based reforms. In recent years, Beijing has repeatedly criticized its own growth model as overly dependent on exports and government investment, and has indicated an eagerness to tolerate slower growth in order to shift the economy to one that is based more on consumption.
Last November, the Chinese leadership clarified its intentions by issuing a communiqué and an agenda for reform after a major Communist party conclave. The documents emphasized the need to reduce the role of government and allow the market to play a “decisive role in allocating resources” in the economy.
Immediately afterwards, Chinese president Xi Jinping issued a long accompanying explanation in which he wrote, “Theory and practice have both showed that market allocation of resources is the most efficient.”
These pronouncements do not make the Chinese leadership free-market defenders or even liberal reformers keen to undertake further privatization of China’s powerful state-owned sector. In fact, in the reform documents issued last November, the Chinese Communist party could not actually bring itself to acknowledge the private sector by its proper name and instead repeatedly referred to it as the “non-public ownership economy.”
Yet as economist Barry Naughton of the University of California, San Diego, recently observed, “I think that Xi Jinping is not interested in privatization at all, but I do think that he accepts that private businesses are more efficient and will out-compete state firms in most parts of the economy.”
For President Obama and his domestic agenda, this narrative is not at all convenient. The president’s detractors have always found his enthusiasm for the free market to be limited and his love for the expansion of government unbounded. He would much rather paint a China story that suits his political purposes than recognize the nuanced reality of the second-largest economy in the world.
Extolling the market as the most efficient allocator of resources or calling for a reduction in the role of government in the economy is something that few would expect Obama to do. The president should not be surprised, then, that even though President Xi is the general secretary of the Chinese Communist party, Obama is the one more commonly known to his critics as a socialist.
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