Menu - Close Created with Sketch. home Created with Sketch.
Said Business School logo

The Oxford Saïd Review


The Oxford Saïd Review

Lead. With Purpose.

The Oxford Saïd Review


Why China’s infrastructure investment may be doing more harm than good

John Coutts

8-minute read

John Coutts

Snaking for nearly 19 miles across the Pearl River estuary, the Hong Kong–Zhuhai–Macau Bridge exemplifies China’s appetite for infrastructure built on a monumental scale. The crossing – a six-lane motorway – includes viaducts, bridges and a pair of artificial islands, as well as four miles of sea tunnels that dive beneath the estuary’s busy shipping lanes.

The final bill for this yet-to-be opened megastructure is expected to reach US$19bn. But it’s just the tip of China’s infrastructure iceberg. China spends more on economic infrastructure annually than North America and Western Europe combined. And with infrastructure spending of US$28tn predicted by 2040, there’s little sign of China’s boom running out of steam.

Spend, spend, spend

Political leaders everywhere are paying increasingly close attention to China’s ambitious infrastructure programme. Big projects are seen as a way of boosting the economy and China is serving as an inspiration for leaders looking to get their own schemes off the ground. California Governor Jerry Brown, who met with China’s President Xi Jinping, recently told NBC News: ‘If we're going to be the great power we all want to be, we’re going to have to start rolling up our sleeves, raising some revenue and getting the job done.’

Over half of the infrastructure investments in China made in the last three decades the costs are larger than the benefits they generate

But do big infrastructure projects really deliver the benefits expected? In a study by Oxford Saïd published last year (‘Does infrastructure investment lead to economic growth or economic fragility? Evidence from China’; Oxford Review of Economic Policy, Volume 32, Number 3, 2016), Atif Ansar, Bent Flyvbjerg, Alexander Budzier and Daniel Lunn question two key assumptions about infrastructure projects in China. The first is that infrastructure investment creates economic value. The second is that China has a distinct advantage in infrastructure delivery. Both, they argue, are fallacies.

‘The evidence suggests that for over half of the infrastructure investments in China made in the last three decades the costs are larger than the benefits they generate, which means the projects destroy economic value instead of generating it,’ says Dr Ansar, Programme Director of the MSc in Major Programme Management, Saïd Business School. So what is China doing wrong? ‘One of the things we see is that Chinese projects face similar cost overruns to the rest of the world – so they’re not building on budget. Our observation was that there was a 31% overspend on these projects on average,’ says Dr Budzier, Fellow in Management Practice, Saïd Business School. ‘Three-quarters of the projects in the study suffered cost overruns.’

Building infrastructure is risky and Chinese transport projects, it turns out, are just as susceptible to cost overruns as those elsewhere in the world. But in China, there’s an added twist: ‘In a lot of the projects we looked at, the users simply didn’t show up,’ explains Dr Budzier. ‘The cars don’t show up on the roads and bridges, and the riders don’t turn up on the trains. That means the schemes don’t generate the revenue they need to pay back their loans.’

Chinese transport

On the face of it, the average traffic shortfall looks modest – just 5% across all the projects. But averages can be misleading – particularly where extremes are involved. Drilling into the data, nearly two-thirds of the projects turned out to have traffic shortfalls averaging more than 40%, while some received less than 20% of their forecast traffic.

At the other extreme, more than a third experienced congestion with an average traffic surplus of more than 60%. The study taps into evidence from 95 large Chinese road and rail transport projects and 901 transport projects built in China and in rich democracies – the largest dataset of its kind on China’s infrastructure that exists. Critically, it finds that infrastructure spending may not only have no economic benefits but may actually be bad for a country’s economic health.

‘The whole idea of infrastructure projects is to improve the economy of the nation or the region where you are investing. So it’s bad economics to invest in projects that don’t have a positive real benefit-tocost ratio because this detracts from the economy instead of adding to it,’ says Dr Flyvbjerg, BT Professor and Chair of Major Programme Management at Oxford Saïd.

Benefits shortfalls are only one part of the problem, explains Professor Flyvbjerg. ‘The other thing is that China has chosen to debt finance a lot of its projects. That makes it risky to run this strategy and makes the outcome particularly problematic: by investing in projects that are not profitable, China is not only weakening its economy but also its ability to pay back that debt. If that risk materialised, it would be a problem not only for China, but for the whole world.’

Building infrastructure creates jobs in the short run, but as soon as the last team leaves the construction site, that project is no longer a positive for the economy.

China’s debt pile is a matter of increasing international concern. In August, the IMF urged China to reduce its reliance on debt-fuelled growth. Non-financial sector debt – which includes household, corporate and government debt – is expected to soar to nearly 300% of GDP by 2022, up from 235% in 2016.

Overspending on infrastructure is intimately linked with China’s colossal debt burden. The study estimates that infrastructure cost overruns equalled approximately one-third of China’s mammoth US$28.2tn debt in 2014.

None of this has done much to dent China’s infrastructure ambitions, which are increasingly focused on achieving foreign policy goals. China’s “Belt and Road” initiative to re-create historic Silk Road trade ties underlines this tendency. Nearly US$1tn has been earmarked for projects. Almost all of this will be spent outside China.

The road ahead

Setting aside geopolitical ambitions, what measures could China adopt to ensure that future infrastructure delivers tangible economic benefits? And by extension, are there lessons here for Western democracies considering their own infrastructure programmes?

‘The first thing is to think carefully about what risks are being taken on and how those risks are financed,’ says Dr Budzier. ‘That means being cautious about debt-financed infrastructure. You can’t just provision risk from the private sector. There’s also a need to better understand how infrastructure helps the economy to grow.’

One area where schemes in China struggle is when they attempt to stimulate commerce between cities and regions.

The road ahead

‘The riders don’t turn up,’ says Dr Budzier. ‘So if you think about China’s vision for Belt and Road: is there a real understanding of what the risks are and who is carrying those risks if the scheme is debt-financed and needs to generate the revenues to pay for itself?’

There are also dangers around relying on infrastructure stimulus to create jobs, warns Professor Flyvbjerg: ‘China has been extremely successful in bringing people out of poverty, so it’s fully understandable the Chinese think this is a great model. But that’s a bit short-sighted because you might actually build projects that are completely worthless or evennegative for the economy. They create jobs in the short run, but as soon as the last team leaves the construction site, that project is no longer a positive for the economy.’

With politicians everywhere eager to get shovels in the ground, it’s a timely reminder that big infrastructure schemes can create as many problems as they solve.

To read the full study, Does infrastructure investment lead to economic growth or economic fragility? Evidence from China, click here.


The Oxford Handbook of Megaproject Management

Edited by Professor Bent Flyvbjerg; Oxford University Press, 2017

The Oxford Handbook of Megaproject Management aims to be the benchmark in the fast emerging academic field of megaproject management, in which Saïd Business School is the global leader.

Megaprojects are huge and highly complex ventures that typically cost more than US$1bn to build and affect the lives of millions of people. Examples include high-speed rail lines, motorways and dams. They can also be large systems (government IT is an example), industrial and manufacturing projects (such as the Airbus jumbo jet) and events (the Olympic Games).

The Oxford Handbook of Megaproject Management, edited by Dr Bent Flyvbjerg, Professor of Major Programme Management at Saïd Business School, represents a milestone in the evolution of megaproject management as a distinct academic discipline. The book explores every aspect of the subject, from planning through to delivery, taking in areas such as behavioural economics, risk, finance, innovation and governance along the way.

Why is the book needed now? ‘Because we’ve never done more megaprojects,’ explains Professor Flyvbjerg. ‘These projects are not only large and constantly growing larger, they are also being built in ever-greater numbers and at ever-greater value.’

As well as exploring the challenges of megaproject management, the book provides penetrating analysis of where and why problems arise

The book contains some startling statistics. Between 2011 and 2013, for example, China used more cement than the US did throughout the entire twentieth century – a total of 6.4 gigatons. The value of the market for megaprojects worldwide, meanwhile, is estimated to be US$6tn-9tn per year or about 8% of global GDP. The trouble with megaprojects is that they seldom live up to expectations. Most are delivered late and fail to deliver the benefits promised. Up to 90% of projects suffer cost overruns. This is the ‘iron law of megaprojects,’ says Professor Flyvbjerg: ‘Over budget, over time, under benefits, over and over again.’

Megaprojects can be successful in functional and symbolic terms while failing completely on the economic front – sometimes to a spectacular extent. The Channel Tunnel (90% over budget), Sydney Opera House (1,400% over) and the Scottish Parliament Building (1,600% over) all underline this point.

As well as exploring the challenges of megaproject management, the book provides penetrating analysis of where and why problems arise. It also offers important lessons for megaproject builders and funders, with chapters examining topics such as stakeholder management, delivery models and private finance.

The book is the first step in establishing a literature about megaproject management, a field in which Oxford University and Saïd Business School are leading the way. ‘We’re working to consolidate megaproject management as an academic area – and this book is the start of that process,’ says Professor Flyvbjerg.

The Oxford Handbook of Megaproject Management is available to buy here.

Alumni in action

The leader of Bridges to Prosperity is providing the cornerstone for prosperity to communities locked in poverty due to a lack of transport links.



Much has changed since Saïd Business School was founded, which is why today we are generating high-quality research that also features a high quality of engagement.