U.S. rescue plan vs. China's infrastructure investment: Who's got a better deal?

U.S. rescue plan vs. China's infrastructure investment: Who's got a better deal?

Editor’s note: James Carlini wrote this column before Treasury Secretary Henry Paulson announced a shift in the U.S. financial rescue plan away from buying troubled mortgage assets and toward non-bank financial institutions and consumer finance.

It was just announced that China is going to put $586 Billion dollars into its infrastructure. Most of the major press reported this in the last several days with various stories discussing the broad investment that China is going to make by 2010 according to its government. According to one report:
“The statement said the spending would focus on 10 areas. They included picking up the pace of spending on low-cost housing – an urgent need in many parts of the country – as well as increased spending on rural infrastructure.
“Money will also be poured into new railways, roads and airports. Spending on health and education will be increased, as well as on environmental protection and technology.”
About more than $700 billion
Before it got passed, the bailout package expanded into another $150 Billion in give-aways which is not mentioned in many newscasts. So the Bailout Package is over $850 Billion not counting some other previous bailouts like the one to AIG. Maybe it’s more like a Trillion Dollar Bailout. I’d like to know how many new airports and high-speed railways are coming out of it, not to mention multi-gigabit broadband connectivity networks.
When you’re spending several hundred billion dollars in the United States, it is easy to waste a couple billion here and a couple of billion there. I do not see that with the Chinese. If they put close to $600 billion dollars in play to enhance their infrastructure and housing, chances are they are going to put all of it to good use.
Does this mean more jobs in the U.S.?
Don’t hold your breath about China’s Infrastructure Investment creating more jobs in the United States. If the Chinese are going to be building infrastructure, this may mean some jobs in the United States. A couple of companies may benefit from large developments in China if heavy construction equipment is bought or if professional services are used but don’t expect a surge of new job openings.
If they use the money right, they might create more jobs in the United States than our own bailout package which is turning into a fiasco.
It would have been nice to see this “build the infrastructure” type of package approved in the United States instead of a bailout package that is turning out to be a way to get bonuses for undeserving banking and finance executives.
Instead of driving the money into real stimulus and real relief for those caught up in the credit crunch, bailout money has also been used to buy up competitors, which flies in the face of how the bailout program was sold to the public. It was also recently reported that AIG had another retreat in Arizona after it was criticized for holding a $440,000 retreat including golf outings and banquets not to mention an $86,000 hunting trip in England. “Tally Ho” with taxpayers’ money must be the company motto.
There is some current talk about including the U.S. auto industry in with the bailout recipients. Are you going to run out to buy a new Tahoe or Expedition with your stimulus check? Is this a good move for us? What if we put our money into improving the platform for commerce – the infrastructure – instead?
What China gets for $510 billion
Let’s assume most of China’s investment goes into the different layers of infrastructure. With $76 billion into housing and other amenities, that leaves $510 Billions for infrastructure investments.
What does $510 billion buy for a layer of infrastructure? The table below shows if all of it is put in one layer ($510 billion), then if it is split up for two layers ($255 billion apiece) or spread across three layers (total $510 billion.).

LAYER/
AMOUNT
RAILWAYS AIRPORTS BROADBAND
NETWORKS
$510 BILLION
(PICK ONE LAYER)
HIGH SPEED RAIL
@ $40 MILLION A MILE
12,750 MILES OF TRACK
FULLY COMPLEMENTED AIRPORTS @ $85 Billion apiece
SIX
FIBER NETWORK @ $!50,000 a mile installed


3.4 MILLION MILES OF FIBER
$255 BILLION
(PICK TWO LAYERS)
HIGH SPEED RAIL
@ $40 MILLION A MILE
6,375 MILES OF TRACK
FULLY COMPLEMENTED AIRPORTS @ $85 Billion apiece
THREE
FIBER NETWORK @ $!50,000 a mile installed


1.7 MILLION MILES OF FIBER
$170 BILLION
($510 Billion SPREAD ACROSS ALL THREE LAYERS)
HIGH SPEED RAIL
@ $40 MILLION A MILE
4,250 MILES OF TRACK
FULLY COMPLEMENTED AIRPORTS @ $85 Billion apiece
TWO
FIBER NETWORK @ $!50,000 a mile installed
1.133 MILLION MILES OF FIBER

Source: James Carlini, certified infrastructure consultant
This looks like a great investment because with all the higher quality infrastructure levels, the Chinese economy creates a much more solid platform for its global commerce and the payback will create jobs as well as increased global trade.
Adding several international airports, as well as high-speed regional rail and broadband connectivity, can only strengthen China’s (or anybody’s) economy in the global marketplace.
The high-speed rail is something that was voted on in the last California election as Referendum 1A. Their estimated costs were $40 billion for an 800-mile track networked between San Diego, Los Angeles, and San Francisco. Their estimate is $50,000,000 a mile which may include stations and other infrastructure. In any case, high-speed rail (220 MPH trains) is not cheap per mile. It should only be considered in an area that is going to really utilize it, but it will create a lot of jobs both in the construction phase and permanently.
Setting priorities
A $700 billion bailout package would have been enough to do many of these large infrastructure initiatives in the U.S.
Listening to reports of non-deserving executive bonuses, hunting trips, junkets to resorts, and acquisitions coming out of the bailout money in the U.S., it sounds like the Chinese have a better handle on national initiatives and how to prioritize building lasting infrastructure.
Carlini-ism: Certain things in Washington have to be fixed before we can really fix the rest of the country.

James Carlini is an adjunct professor at Northwestern University, and is president of Carlini & Associates. He can be reached at james.carlini@sbcglobal.net or 773-370-1888. Check out his blog at Carlini’s Comments.com.
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission.
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