I haven’t posted any staggering statistics recently, but not long ago the WSJ had a brilliant one:

“Much of the $586 billion stimulus package China unveiled this week will go toward building highways, railroads and airports. Already, according to official estimates, infrastructure spending had been increasing by an average of 20% annually for the past 30 years…” (Thanks to the Asia Logistics Wrap.)

It’s embarrassing that I had to ask a colleague who isn’t old enough to remember when Michael Jackson was cool how to calculate that number, but I did: An increase of 237 times since 1978 - incredible even if you assume that the 1978 number was something like the annual roads budget of Lorain, OH. Suffice to say that China has been building a lot of infrastructure in the last 30 years.

The result is that in the richer areas, China has infrastructure like a developed country - better, actually, since it’s all brand new. Roads, bridges, airports, subways, ports, a maglev… And as the WSJ article makes clear, all that stuff (except the maglev) has really helped people and the economy; it’s far easier to get around than it used to be, and producers have far more market opportunities than before.

But the big danger with big infrastructure is that it is subject to abuse for governments with something to prove, which is to say all of them. It’s so much easier to build another bridge than to address, say, a lousy health care system, or a retirement safety net, or anything “soft” or intangible. And then you can point to the bridge as proof that you’re doing something useful, even if you’re not. The danger is compounded when a booming economy has been masking bad decisions for a long time, and both America and China know something about that. And now the government has opened the floodgates of infrastructure spending in an effort to hold off the looming global recession, and I’m starting to get a bad feeling.

Today I was in one of the many small cities (190,00 population) of the Yangtze river delta. Their new city expansion zone, many square kilometers, was anchored by a boulevard that was at least 100 meters wide, with eight traffic lanes, three boulevards, and two bike/moped lanes. As a city-building piece it’s a disaster - what kind of buildings do you put on an urban street that’s wider than Park Avenue or the Champs Elysees, especially when you’re a county-level city in southern Jiangsu? - but it was intensively landscaped and really expensive, and this kind of excess can be found all over the place. The new 32 km Hangzhou Bay bridge, which does make sense to me, has at its center a five star hotel under construction - but who will stay there? Who is going to take the immense bridge/tunnel link across the Yangtze from Shanghai to Chongming island and Qidong, two small farm cities? I know the demographics of China are daunting - 20 million new urban residents every year, an economy that doubles in size every decade - but sometimes you have to wonder, is all this stuff really going to get used?

I buy the argument that the U.S. is in a “liquidity trap” in which people will not lend or spend no matter how low interest rates go (although I think the primary reason is not irrational fear but the fact that we don’t have any money) and I think infrastructure spending in America is a good idea and in many cases desperately needed. Ironically, I think it’s less likely to get wasted in the U.S. - the more “advanced” economy - because we’ve been cheaping out on it for so long. But in China, at least in the coastal regions that have been getting all the attention, I’m afraid the era of billion-yuan gold-plated knickknacks is upon us.

Ed: I am very gratified to see that the always excellent, actually qualified and serendipitally-named David Dollar, China economist for the World Bank, agrees with me. At least that’s how I choose to read it.