China’s local governments urged to rethink approach to infrastructure investment

China must address a rising problem of overinvestment in large but inefficient projects that is more rooted in habitual practice than any consideration of economic productivity, think tank scholars said.

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Governments must make rational adjustments and “know where to hit the brakes and where to step on the gas” in order to ensure sustainable economic growth and avoid the pitfalls of overambitious spending that were seen in past projects of questionable utility, Chen Gong, the founder of the independent Anbound think tank, said during a discussion session in Hangzhou last week.

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“One of the gravest challenges China’s future faces is how to compress inefficient and already excessive investments,” he said, adding that it is no longer feasible to approach future development using past methods that were often marked by low investment efficiency and rising local government debt.

The comments came as China struggles to find more sustainable growth drivers amid slowing economic expansion, with investment in infrastructure projects remaining a popular option to prop up economic activity.

China’s local governments have long relied on large construction projects to drive short-term regional growth, but many have been poorly planned and wasteful, failing to deliver the anticipated returns.

Local governments are burdened with massive levels of debt, with abandoned projects – such as unfinished flats and abandoned railway stations – leaving them unable to pay teachers and public servants, or maintain essential services like transport.