• World

China’s New Deal: Modernizing the Middle Kingdom

13 minute read
Simon Elegant/Beijing and Austin Ramzy/Guanling

Guizhou province, in southwestern China, is a place of striking natural beauty: jagged peaks surrounded by fields of bright green rape, ridges slashed with limestone outcrops and plunging waterfalls. But these days the region’s grandest sight is man-made: the Baling River Bridge. Due to be completed early next year, this 1.4-mile (2.25 km) marvel of engineering is a jarringly conspicuous splash of 21st century technology amid Guizhou’s farms and rice fields, which haven’t changed much in thousands of years. It’s as if the Golden Gate Bridge had been dropped into some bucolic Middle-earth mountainscape.

Out of place as it may appear, this is no bridge to nowhere. Soaring a quarter-mile (400 m) above the Baling River, the $216 million span will reduce travel time considerably for the stream of trucks and cars traversing a highway that connects the provincial capital, Guiyang, with the nearest big city, Kunming, the capital of neighboring Yunnan province. Far from resenting the bridge as a white elephant, the residents of nearby Guanling, a one-stoplight town where the average income is less than $150 a year, view it as crucial to economic development and improvement in their lives. “I really cannot wait for the bridge to be completed,” says Yuan Bo, 25, a graphic designer who takes a two-hour bus ride every week from his home in Anshun to help in his family’s Guanling restaurant.

What’s good for Yuan Bo and Guanling is good for China. While the recession-racked West debates the wisdom of borrowing billions of dollars and spending it on economic stimulus, China is reaching into its vast financial reserves to launch one of the most ambitious and expensive public-works programs ever undertaken. The Baling River Bridge is only one of hundreds of infrastructure projects — ports, airports, bridges, schools, hospitals, highways, railroads — on which China plans to spend about $450 billion over the next several years. Announced in November, this pumped-up New Deal is aimed at more than cushioning China’s economic fall as the global recession bites deeply into the country’s manufacturing and export sectors. The new projects will make it much easier for commerce and people to move around China, hence stimulating domestic demand and reducing China’s economic reliance on exports, vital as rich world consumers rebuild their balance sheets and international trade contracts.

China’s leaders are using the financial crisis as an opportunity to consolidate gains already made in the country’s global competitiveness while laying a foundation for even greater progress in the future — and for the international power that economic prowess can bring. Nationalist voices in the media are already framing the crisis as a transformational moment in China’s rise and the decline of the U.S. “They’ve criticized the dollar and asked for a new global reserve currency. They’ve criticized the U.S. role in the International Monetary Fund,” says Beijing-based China scholar Russell Leigh Moses. Premier Wen Jiabao recently pleaded with Washington to safeguard China’s investment in U.S. bonds, which will decline in value if the dollar weakens on foreign-exchange markets. That too, says Moses, was a reminder to the U.S. that “you aren’t in the driver’s seat anymore and maybe you should move over.” (See 10 things to do in Beijing.)

For an economy like China’s, which is the world’s third largest but is still just a third the size of the U.S.’s, the scale of the package is staggering. Total new spending is pegged at $586 billion, about 16% of GDP. In contrast, the $787 billion stimulus package approved by the U.S. Congress in February is just 6% of GDP. While upwards of 75% of Chinese spending will go toward infrastructure, just 10% of U.S. spending will. The difference to an extent reflects the fact that the nations are at different stages of economic development: America’s railroad networks were built in the 19th century (and show it), and its interstate-highway system was mainly constructed in the 1950s and ’60s. But it also speaks to the sheer scale of China’s ambition to modernize itself.

Inevitably, some critics complain that Beijing has released few details of where the money will go and that some of the funding is not new: the package, for example, includes $147 billion for reconstruction in areas of Sichuan province that were devastated by a 2008 earthquake, money that would have been spent in any event. But wherever you go in China now, you come across projects that boggle the mind. In late March, for example, the government began soliciting bids for the Hong Kong — Zhuhai — Macau highway, a bridge-and-tunnel complex 16.5 miles (26.6 km) long that will allow connections among 35 ports in the Pearl River Delta, the cradle of China’s economic boom. When completed in 2015, the $10 billion project will cut driving time from Hong Kong to the industrial area of Zhuhai from about four hours to just 30 minutes.

See pictures of China’s earthquake.

See pictures of China doing business in Africa.

Looking to the West
Are such huge projects really necessary? China, with its gleaming coastal cities and modern transport hubs, is already the envy of developing countries like India. And from Alaska to Japan, there are plenty of examples around the world of infrastructure projects that owed more to local politicking than to real economic need. Most of China’s stimulus spending, critics note, will be supervised by local governments. This will undoubtedly mean that some money will end up lining the pockets of corrupt bureaucrats.

Yet there are early signs that the massive influx of government spending is already accomplishing its main goal: easing China’s economic slowdown, which has been headlined by double-digit declines in exports, thousands of factory closures and the layoff of about 20 million workers. Economic statistics for the first quarter of 2009 were surprisingly positive, leading some economists to conclude that the rate of contraction was slowing and that China might be on the road to recovery. Power-generation and transportation statistics, key indicators of the economy’s direction, registered modest increases in March after months of decline. Banks lent money at record levels, investment showed signs of recovery, and auto sales grew nearly 3.9% in the first quarter compared with the same period last year, thanks to subsidies for new-car buyers and lower sales taxes. The results led Wen to conclude that “Chinese government policy has been timely, correct and decisive.”

China, of course, has certain advantages when it comes to managing shifting economic winds. There’s no peskily powerful Congress to worry about, for one thing; what the Chinese government wants in the way of policy, it gets. Christopher Wood, chief Asia strategist for the brokerage and investment firm CLSA, says the fact that China’s economy is a hybrid of capitalism and a socialist command economy has given the government much greater flexibility to intervene. Beijing more or less ordered Chinese banks to increase lending in response to the global financial meltdown. Wood, a former journalist well known for predicting the bursting of Japan’s bubble 20 years ago, says he expects the beneficial effects of China’s stimulus spending to continue for three to six months. While other Asian economies are expected to suffer sharp contractions in 2009, CLSA is predicting that China will hit its government-set GDP growth target of 8% this year, following a drop in the first quarter to 6.1%, the slowest annual growth rate since at least 1992.

But for any recovery to last beyond the end of the year, China’s crucial manufacturing and export sector must revive. Otherwise, Wood says, stimulus spending could result in a “skewed outcome”: billions of dollars in loans made to artificially boost growth could start to go bad, dragging down China’s banks; at the same time, the country would remain saddled with a glut of factories producing a vast surplus of goods no one wants to buy.

While the stimulus package has risks, it also affords China a chance to rebalance the country’s growing wealth. One by-product of China’s prolonged expansion is that coastal regions — marked by boomtowns such as Shanghai, Guangzhou, Xiamen and Tianjin as well as their hinterlands — have grown much faster than the country’s interior provinces, which have always been poorer. For years the central government has tried various policies to lift western China, without much result. The infrastructure push gives Beijing another chance to address divisive and potentially explosive wealth gaps that have grown between east and west, rich and poor.

City on a Hill
These divisions, and the government’s push to reduce them, are evident in the southwestern megalopolis of Chongqing. Built on the hilly banks of the Yangtze River, this ancient trading center was the effective capital of China during World War II and today is one of the world’s largest municipalities, with a population of 31 million. The brightly lit buildings along the Chongqing riverfront display a cosmopolitan sophistication. But that impression quickly fades as you leave the city for the corrugated hills outside. “In Chongqing, the transportation system and so on are quite developed,” says Shen Xiaozhong, deputy director of the city’s office of the National Reform and Development Commission. “But go out 30 km from the city — not that far — and the conditions are still pretty poor.” Truth to tell, they’re bad enough in parts of the city itself, where legions of “stick stick” men line the sidewalks hoping to earn a few dollars carrying goods up the town’s steep hillsides, reminding all who see them of China’s lingering poverty.

See 10 things to do in Shanghai.

Shen says government infrastructure projects have already created 20,000 jobs in Chongqing this year, mostly in construction. He outlines development plans that could pass for a battle strategy, with lines of attack — in this case, faster rail lines — spreading from Chongqing across the country. In response to the economic crisis, Beijing accelerated its schedule for improving the country’s rail networks by five years. As a result, travel time for a train journey from Chongqing to Beijing is expected to fall from 25 hours to seven by 2015. That’s just the start. Another runway will be added to Chongqing’s airport, the electrical grid will be upgraded, $5.8 billion will be spent on improving public water supplies, and wastewater treatment will be expanded to cover 90% of urban sewage, up from about 70% now. (See pictures of China’s electronic waste village.)

In Chongqing, signs of public-works programs are everywhere. A walk through the extensive stairways and underground markets that make up the city’s downtown is interrupted by detours and periodic detonations, the result of work on a new light-rail system scheduled to be completed by 2011. “We still need at least 20 years to develop infrastructure to catch up with developed countries,” says Shen. “For China, the infrastructure projects are not only temporary measures to get the country out of the downturn but an opportunity to prepare for the economy to take off in the future.”

China is using the stimulus package to play catch-up on another front: the environment. Three decades of rapid, unchecked economic growth has turned many of the country’s rivers into cesspools and lands into wastelands and much of its air into grimy soup. Some $30.9 billion has been officially allocated under the stimulus plan for “environmental projects” to help clean up the mess and put the country on a path to more sustainable development. The government of Jiangsu province, for example, recently announced a $16 billion plan to clean up Lake Tai, once famed for its beauty and abundant fish but now better known for the choking algae blooms caused by industrial runoff that has made the water undrinkable for the millions who depend on it. “We are not taking environmental protection as a second priority,” Jiangsu Governor Luo Zhijun recently told local reporters. “For us, it is just as important as economic development.”

Mountain High, Emperor Far Away
No matter how well intentioned, China’s stimulus package may provide little more than a short-lived growth blip if officials are unable to control the perennial bugbear of Chinese economic development: pervasive corruption in local and provincial governments, which make their own way far from the brilliant technocrats in Beijing. (Read “The Secret Memoir of a Fallen Chinese Leader.”)

Take the case of a project already under construction in Yan’an, the end point of the Long March, a place steeped in symbolism for Chinese people. A few steps from a memorial to Zhang Side — a soldier who, after being killed while hauling charcoal in 1944, was picked by Mao Zedong to serve as an example of selfless communism — is the entry to a tunnel. Someday it will be part of a highway that leads west from Yan’an. The key word is someday. The Shazuimao tunnel, which faces a mountain that bears giant characters in Mao’s calligraphy reading SERVE THE PEOPLE, has been delayed four times by workers protesting over unpaid wages. The city’s transportation department and the local Communist Party discipline office are investigating allegations that the company originally hired to dig the tunnel subcontracted the work to an unqualified firm while pocketing a portion of the funding. “There’s always money and corruption involved,” grumbles a farmer named Wang who lives nearby. Authorities haven’t completed their investigations, but there’s no denying the delays. A banner at the mouth of the tunnel announces a completion date of October 2008. “This project has been a disaster for us,” says Wang. “We would be lucky to have it done by this October.”

Graft was rife in construction projects long before the current downturn. “Public spending is already subject to considerable siphoning off and, perhaps even more critically, waste,” says Andrew Wedeman, a political scientist and Chinese-corruption expert at the University of Nebraska. During the boom years, such waste mattered less because growth was so robust. But if China’s GDP expands only 6% to 8% this year, as some predict, corruption could dampen recovery. “What really matters is not if funds will be siphoned off or how much will be siphoned off,” Wedeman says, “but rather whether the siphoning will have a clear and negative impact on the central government’s efforts to restimulate the economy.”

But notwithstanding the amounts that will disappear into bank accounts in Hong Kong, casinos in Macau and the gaudy houses that stud the outskirts of every Chinese city, China stands to gain more than it loses through its building campaign. The scale of its needs remains immense: the country’s leaders are, after all, attempting to move more people out of dire poverty and into something like comfort in a shorter time than has ever been seen before in human history.

And so the work goes on. At the base of a $527 million bridge being built across the Yangtze River in Chongqing, dozens of dump trucks and backhoes rumble amid boulders and mud to prepare an access road to the span, scheduled to be completed this month. “It’s good not having to worry about finding work and getting paid,” says a laborer named Yang, who is helping construct the Chongqing Grand Theater, a magnificent music and opera house being built on a river headland within sight of the Chaotianmen bridge. “There are so many public projects going on, there will always be a place for me.”

See pictures of Shanghai.

See pictures of Beijing.

More Must-Reads from TIME

Contact us at letters@time.com