  The prevalent view in the economics literature is that a high level of
infrastructure investment is a precursor to economic growth. China is
especially held up as a model to emulate. Based on the largest dataset of its
kind, this paper punctures the twin myths that, first, infrastructure creates
economic value, and, second, China has a distinct advantage in its delivery.
Far from being an engine of economic growth, the typical infrastructure
investment fails to deliver a positive risk adjusted return. Moreover, China's
track record in delivering infrastructure is no better than that of rich
democracies. Where investments are debt-financed, overinvesting in unproductive
projects results in the buildup of debt, monetary expansion, instability in
financial markets, and economic fragility, exactly as we see in China today. We
conclude that poorly managed infrastructure investments are a main explanation
of surfacing economic and financial problems in China. We predict that, unless
China shifts to a lower level of higher-quality infrastructure investments, the
country is headed for an infrastructure-led national financial and economic
crisis, which is likely also to be a crisis for the international economy.
China's infrastructure investment model is not one to follow for other
countries but one to avoid.
