The Agenda

Chinese Infrastructure

Have you heard the much-anticipated album “Chinese Infrastructure”? That was what we call an awful segue to an illustrative news item, from the urban news blog Shanghaiist:

 

A 31-kilometer section of the new S207 highway in Gansu, an 8.7 billion RMB project ($1.36 billion USD), is already being repaired for cracks mere months after opening for service. The 235-kilometer Tianding Expressway (天定高速) runs from Tianding (天水) to Dingxi (定西) in Gansu, and was completed on May 31st.

However, China Daily reports that there were already complaints of cracks arriving as early as late June, with some measuring up to ten meters. Repairs are currently being handled by the same contractors initially tasked with building the road, and drivers meanwhile have been advised to slow down to 20km/h in certain sections.

Could the road have failed so quickly due to penny-pinching? Tan Yingpeng of Gansu’s communications office dismisses the notion that cheap materials were the cause of the road’s premature dilapidation, despite the fact that an average of 37 million RMB was spent for each kilometer of the highway, when the usual cost is approximately 100 million RMB.

As a believer in penny-pinching, let’s not forget that there is a difference between penny-pinching and chiseling. Or to be clearer, what we have is a case of penny-wisdom and pound-foolishness. One gets the impression that the builders of the road grossly underestimated the cost of building it, perhaps to secure the contract. This suggests that the contractor should be held liable, i.e., that what we need in this case, and in most cases of this kind, is a true fixed-price contract. If a firm doesn’t deliver a quality of service at an agreed-upon standard, the firm should be responsible for the cost of unexpected repairs. This, in turn, would create a powerful pressure towards consolidation and towards more responsible bidding. 

This issue is complicated when the firm in question is a public entity, which can pass on the costs of its irresponsibility to the taxpayer. This also true of private firms that don’t operate under true fixed-price contracts, the status quo arrangement that tends to prevail in the United States.

In case you thought I’d spare you cheap point-scoring, let us not forget that China’s various infrastructure woes happen against the backdrop of leading American public intellectuals and politicians insisting that the United States might learn a thing or two from China’s approach to public investment, and indeed from the speed and decisiveness of decision-making under an authoritarian regime. You can draw your own conclusions.

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