Privatizing China's Transportation Infrastructure the Research Paper

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Despite these constraints, China does in fact have an impressive transportation infrastructure already, and China's rankings relative to the rest of the world in various transportation infrastructure categories is provided in Table 1 below.

Table 1

Current Status of China's Transportation Infrastructure

Infrastructure Category

Statistics/Current Status

World Rank

Airports

15

Railways

77,834 km

3

Roadways

3,583,715 km (includes 53,913 km of expressways)

2

Waterways

110,000 km navigable

1

Merchant marine

1,826

3

Ports and terminals

Dalian, Guangzhou, Ningbo, Qingdao, Qinhuangdao, Shanghai, Shenzhen, Tianjin (see map at Appendix a)

Source: China, 2010

The network of paved highways and roads that extends throughout China, though, is not the same type of national and unified transportation system that exists in the U.S., Japan and Europe that are characterized by uniform standards and regulatory guidelines and many of the roadways are in bad condition [10]. Notwithstanding the current state of the roadways throughout China, Tian and Wang (2010) indicate that the network is most likely adequate to satisfy China's current transportation requirements in the near-term but given the explosion in growth of the middle class and the prodigious rate at which personally owned vehicles are being purchased, these experts project a concomitant increase in the demand for highways in the future [10]. In this environment, it would appear that any solution that contributed to the improvement of the nation's transportation infrastructure would be a good idea, but there are some different opinions concerning how China should proceed which are discussed further below.

Pro-Side of the Arguments in Favor of Privatization

From a strictly pragmatic perspective, it just makes good business sense to allow the invisible hand to help a country develop its transportation infrastructure. After all, entrepreneurs are not likely to make significant economic investments in highway construction, for example, unless they are reasonably assured that there is a sufficient demand to ensure a satisfactory return on their investment, and allowing private enterprises to recoup their investment and a profit over the course of say, 20 years, whereupon the highway reverts to the state appears to represent a win-win approach that have proven effective in other parts of the world. For example, according to Pagano (2009), "Recent road leases are part of a much larger privatization trend that has expanded from the 1980's through today. Governments now look to the private sector to provide a wide range of goods and services that government itself used to provide" (p. 351) [8].

Indeed, the move to privatization has expanded to include activities that were formerly the purview of government entities alone such as investments in transportation infrastructure development. As Pagano points out, "In the face of a widely-recognized need for enormous infrastructure repairs and the fact that toll roads are ready income-producing assets capable of attracting investment, it is natural that states would turn to toll road leasing as one of the next large-scale moves in privatization" (p. 351) [8]. Indeed, throughout the United States, toll roads have proven to be an effective way to provide the transportation infrastructure framework for further development by municipalities, states and the national government. For example, Gutfreund (2004) reports that, "Before the United States entered World War II, a handful of important toll roads opened, laying the groundwork for a postwar boom in turnpike construction" (p. 37) [5].

As noted above, the unprecedented growth of China and many of its neighbors means that there are few comparable models that can be used to help guide the process, with the most relevant example being that which took place in the United States during the mid-20th century. Despite the fundamental differences in the political ideologies and culture between the U.S. And China, the model that emerged in the U.S. may provide some useful insights into what can be expected in China, particularly given the country's increasing reliance on a free market economy to fuel its growth and the swelling middle class that will demand more access to efficient transportation services. In this regard, Pagano (2009) observers that, "Today, as the expected useful life of much of the Interstate Highway System approaches expiration, a new set of economic pressures and political assumptions will shape how we address the challenge. State budgets are strained, and the federal deficit is greater than at any prior point in history. The primary sources of highway funding, federal and state motor fuel taxes, are not keeping up with the costs of maintaining roads" (p. 352) [8].

Similarly, the traditional approaches to state-funded highway construction in China may well be a relic of the past as increasing demand outpaces the Chinese government's ability to respond.

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In such an environment, China may well find itself in the same predicament as many Western nations when it comes to transportation infrastructure development: "It may no longer be wise policy for the government to foot the bill for a road project of such scope, given the consequences of the fuel-intensive, car-centric culture that resulted from the success of the Interstate Highway System" (p. 351) [8].

Based on these factors, the national government in the United States has incrementally amplified the degree to which states are allowed to construct toll roads and privately operated toll roads are becoming an increasingly popular alternative to satisfy the transportation needs of Americans [8]. While there have been some experiments that allowed states to incorporate toll roads into the Interstate Highway System itself in the past, the pilot programs for these initiatives were discontinued in 2007; however, in the years following the enactment of the Federal Highway Act of 1956, a number of other pilot programs were launched that allowed states to collect tolls on federal-aid highways besides the former exceptions such as high-cost projects like bridges and tunnels. In 1987, states were allowed to "establish publicly operated toll roads on federal-aid highways that are not part of the Interstate Highway System. In 1991, the law expanded the program to all states and also began to encourage private investment, permitting the combination of private and federal funds" (p. 352) [8].

In fact, there have been some efforts by the Chinese government to promote the use of toll roads. For example, Hong Kong-based Road King currently operates toll roads in eight Chinese provinces with plans on the table for even more in the future [6]. According to the Road King corporate Web site:

Road King Infrastructure Limited is a leading listed company in Hong Kong with its core business in the investment, development, operation and management of toll roads and property projects in the Peoples Republic of China (PRC). Road King has invested in a toll road portfolio of over HK$5 billion, comprising 18 toll road and bridge projects spanning 1,000 kilometers in eight provinces of China. Road King has commenced the property development business in the PRC since 2004. Projects are located in nine provinces and municipalities." (p. 1) [11]

Likewise, Alling (1999) also emphasizes that China is already heavily relying on outside investments for its public as well as its private ventures, and suggests that the major winners in the privatization of transportation development in China will be the average Chinese citizen while the major losers will be the powers-that-be who have long enjoyed the benefits of a patronage system to help direct where investments in transportation infrastructure would occur: "The major losers from privatization [in China] are operatives of the state apparatus, and the governing class of politicians who use the public sector as a source of patronage and funds" (p. 117) [1]. Given the high stakes involved, though, it is not surprising that there are arguments against the privatization of China's transportation infrastructure development, and these issues are discussed further below.

Con Side of the Argument against Privatization

The importance of an efficient transportation network to a country's development and security has been demonstrated time and again throughout history. The rise of the Roman Empire is attributed by many historians to the excellent network of highways that linked its far flung regions together. This network of imperial roadways facilitated the movement of military forces, international trade and communication. In fact, one of the major driving forces behind the major economic leaps achieved by the United States during the second half of the 20th century was the entirely toll-free, federally funded Interstate Highway System [5]. In this regard, Gutfreund equates the Interstate Highway System with a modern wonder of the modern world and credits it with driving much of the economic growth that took place following the end of World War II. For example, Gutfreund notes that, "Even after the United States entered the war, the surveying and planning efforts [for the interstate system] continued apace, under the rubric of identifying 'strategic highways' with 'defense importance.' During this time, the proposed highway network was often referred to as the 'military system'" (p. 42) [5].

Even while the top….....

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