How China Spends $6.4 Trillion

HOW TO SPEND $6.4 TRILLION

Two Ways to Use Money

I believe in the transformational power of liberty. How China Spends $6.4 Trillion believe that a free Iraq is in this nation’s interests. So. I believe How China Spends $6.4 Trillion a free Afghanistan is in this nation’s interest. George W. Bush, Oct 1, 2004.

Since 2001, the United States has appropriated and is obligated to spend, $6.4 Trillion through the Fiscal Year 2020 in budgetary costs related to and caused by the post-9/11 wars—an estimated $5.4. Trillion in appropriations in current dollars and an additional minimum of $1 Trillion for US obligations to care for the veterans of these wars through the next several decades^[1].

That’s one way. China decided on the other way.

***

Without constant means, most people will not have constant hearts and, lacking constant hearts, will go astray, fall into excess, and become desperate. Punishing them after they have broken the law is setting a trap for the people. So the government must take responsibility for both their material and moral wellbeing. The people’s interests must always come first; the rulers’ interests come last. Mencius, 280 BC.

Since 2001 China has invested twenty-five trillion RMB ($6.4 trillion PPP) in infrastructure development. This is a partial report on what that spending produced.

Though the concept of financial justice has been integral to Chinese thought for millennia. Mao first made it a national policy in 1949 and Xi Jinping made it a centennial goal for 2049. If it succeeds, China will have accomplished the most complete economic transformation in world history–and the fastest. Great Britain took almost two centuries to double per capital industrial output, the US took fifty-three years. China takes just twelve.

China’s productive capital stock[3] has increased by nine percent annually compounded for sixty-five years, an unequalled record.

Then, in 1978, a new leader seemed to abandon Mao’s principles and forced capitalism on a society traditionally suspicious of it. Why?

Planners told Deng[4] Xiaoping that, by maintaining 6.3 percent annual growth. China would remain vulnerable to foreign attack until 2040 but, by adding capitalism to the economic mix. The country could be invulnerable by 2020. Willing to trade socialist principles for safety, Deng told the United Nations, “Unless we develop, China will be bullied. For us, development is the only hard truth.” Acknowledging that this would create great inequality among his countrymen, he told[5] told them, “We should allow some regions and people to get rich first and gradually push for common prosperity later.”

Since ‘later’ will begin in 2021, this is an appropriate opportunity to examine how we got here.

And do so through the lens of infrastructure development–particularly a variety that Chinese dynasties have gloried in for thousands of years: charismatic megaprojects.

Following Deng’s announcement, Western governments lifted their embargoes. Corporate profits soared as CEOs shuttered corporate labs, transferred jobs and knowhow to China. And lobbied for legislation that would place them beyond the reach of national tax authorities, weaken domestic regulations. Reduce taxes, and privatize potentially profitable social services. By underinvested in productivity during slumps and over-invested during booms, corporations created a series of bubbles and recessions, while governments borrowed to replace lost taxes, slashed R&D, and de-funded national laboratories.

Employment stalled, wages stagnated, infrastructure decayed, and educational attainment, social trust, and social cohesion declined.

China headed in the opposite direction. Invited to lecture China’s planners, Nobelists James Tobin and Milton Friedman explained America’s early investment in free universities, research, and infrastructure. The technocrats liked what they heard.

Instead withdrawing from the market, Beijing decided to retain macro-control of the economy. By balancing long-term investment and consumption, setting international terms of trade, controlling inputs like energy. And commodities, and regulating the cost and supply of labour, capital, land and raw materials. Using surpluses from rural areas to fund the industrialization that accumulated capital stock.

They grew the economy by ten percent and capital stock by eleven percent annually.

They doubled real wages every decade by increasing productivity and doubled productivity with infrastructure, lowering. So, the cost of living through investment and organizing resources so as to make the whole greater than the sum of its parts. Therefore, Infrastructure lowered living costs through urbanization and distribution, increasing consumption and raising equality and, thanks to the network[6] effect, the more infrastructure they built, the greater the benefit.

That the infrastructure would create debt bothered them not at all: every project would repay its costs–just as they had done since 272 BC.

Besides, the economy is immune to Western-style, debt-fueled financial crises, partly. Because the financial system is state-owned and integrated and debt is incurred by state-owned institutions. And partly because the debt finances productive investment rather than consumption.

A US Federal Reserve study[16] suggest that China’s government debt quality is so high that it actually creates surplus capital.

Planners could also count on a cultural characteristic that meets one of J. M. Keynes[18] criteria for collective action, “Planning should take place in a community in which as many people as possible. So, both leaders and followers, wholly share your own moral position. Moderate planning will be safe if those carrying it out are rightly orientated in their minds and hearts to the moral issue.”

Nowhere is this shared moral position more evident than in public forbearance of the dislocation caused by gigantic mega-projects. They are as popular today as they were twenty-three centuries ago.

In 272 BC Shu Province, Sichuan, faced a series of devastating floods. Every spring, the meltwater burst the banks at a heavily silted stretch of the Min River but the river carried grain to frontier troops. So, it could not be dammed. But,  the Governor, Li Bing, spent eight years excavating a channel, sixty-feet wide and deep. Through the solid rock of Mount Yulei and permanently diverted some of the flow onto a dry plain. Overnight, the floods ceased and the plain became a rice bowl that fed the emperor’s troops who then united the country.

Today, those two-thousand square miles of irrigated farmland still feed Chengdu’s fourteen million people. And repay the project’s original cost every eight hours. Chinese gods. So, who are democratically elected, are expected to deliver tangible blessings. Today a temple at the site honours Governor Li as God of Waters and millions come to burn incense before his statue.

Governor Li initiated a tradition: charismatic mega-projects to serve as monuments to dynastic greatness.

The Sui Dynasty’s[19] thousand-mile Grand Canal (with pound locks to lift ships over mountains) cut national freight costs in half and ignited a fifty-year economic boom.

Few projects are as cost-effective as these but, traditionally. Therefore, all require years of planning and decades of self-sacrifice, must pay their way, and cause controversy. And nowhere was controversy as strong and prolonged as that surrounding the Three Gorges Dam.

John L. Savage, from the United States Bureau of Reclamation, had surveyed the gorges. So, in 1944 and proposed a. Yangtze River Project’ but it was not until 1954.

Yangtze River floods drowned thirty-three thousand people that Mao was inspired to write Swimming.

I have just drunk the waters of Changsha

But, and come to eat the fish of Wuchang.

Now I am swimming across the great Yangtze,

So, Looking afar to the open sky of Chu.

Although, Let the wind blow and waves beat,

Better far than idly strolling in a courtyard.

So, today I am at ease.

‘It was by a stream that the Master said

‘Thus do things flow away!’ ‘

So, sails move with the wind.

Tortoise and Snake are still.

But, Great plans are afoot:

A bridge will fly to span the north and south,

Therefore, Turning a deep chasm into a thoroughfare;

But, Walls of stone will stand upstream to the west

To hold back Wushan’s clouds and rain

So, Till a smooth lake rises in the narrow gorges.

The mountain goddess if she is still there

So, Will marvel at a world so changed.

The project’s cost, scale, environmental and social impacts were almost beyond imagination. A million people in its path feared for their future, and foreign experts condemned the plan as dangerous and impractical.

Congress, alarmed, demanded construction downstream of the Gezhouba Dam to prove the concept then. After the Gezhouba’s success, only two-thirds voted to fund the project–the narrowest margin ever recorded. Many accused Beijing of ‘ramming the project down people’s throats’.

Planners relocated thirteen cities, one-hundred forty towns, one-thousand six hundred villages and one-million three-hundred thousand people and created a reservoir. So vast that it slows the rotation of the earth, irrigates 1.5 million acres, electrifies eighteen million homes (equivalent to America’s entire East Coast). And–as planners had projected–ended the Yangtze’s floods and repays its capital investment every four years.

Planners next invested $11.4 billion to license high-speed rail technology in 2004 and set to building a fifteen thousand mile network of the world’s fastest, safest trains.

Service began in 2007 and traffic has grown thirty percent annually ever since, reaching 3.5 billion in 2019. More than the rest of the world’s HSR traffic combined, and twice North America’s total air traffic. By 2016 the Beijing–Tianjin HSR line was providing one-hundred million 220 mph rides annually. Since every element of the network is cooperatively owned, The network has exceeded its predictions–technically and financially–and the World Bank[20] calculates that it is covering its capital cost comfortably. Here are some revenues and savings:

• The more lines built, the more accurate predictions have become, leading to more valid financial models and precise bond pricing.
• Scale savings allow more profitable lines to subsidize lines serving remote, thinly populated areas.

• HSR construction creates skilled jobs and lifts demand for construction. Steel and cement industries during the economic downturn: the Beijing–Shanghai HSR mobilized 110,000 workers. A surprising percentage of the investment comes back within twelve months. As income and sales, taxes rippling out from rail factories and construction sites.

• From mass-produced, unballasted rail sections to bridge pylons ordered by the meter. To engines and carriages, production and demand are tightly integrated to eliminate costly downtime. Bridge Girder Erector Machines lay 150’ prefabricated bridge girders in fifty minutes.
• Rents on the vast shopping complexes at multi-level railway stations pay off the bonds. As do proceeds from sale to developers of surrounding land and taxes from the associated increased commercial activity. In future, when new towns are built around existing ‘stations in the middle of nowhere,’ land sales, development and the increased tax base will also pay off the bonds.

• Passenger time-saving improves economic productivity and competitiveness over the long term by increasing the transport capacity of railways and linking labor markets. If 3.5 billion riders earning $3,000/mo. save four hours compared to automobile or plane travel. HSR will save $60 of productive time for each: a $210 billion boost to economic activity and tax revenues.

• Ticket revenues. Since the first line opened, ticket prices have stayed flat. While average wages have almost tripled so that three times as many people can now afford HSR. They raise HSR revenue and free up older lines to carry more profitable freight.
• Urbanites order products from Alibaba in the morning and get them from the other side of the country in the evening thanks to HSR, boosting e-commerce, improving productivity and competitiveness, and generating increased taxes.
• The network delivers billions of advertising impressions to passengers whose incomes are one-third above the national average. Using an app, passengers aboard trains can order meals delivered to their seats at station stops. Concession revenues, snack carts, station concessions, drink dispensers help pay off bonds.
• HSR dramatically reduces noise, high-atmosphere pollution and CO2 emissions compared to conventional modes of travel. Contributing directly to quality of life and indirectly to reducing atmospheric pollution and raising the value of surrounding land.

• HSR is responsible for sixty percent of the increase in market potential[21] for connected second-tier cities. A ten percent increase in a second-tier city’s market potential realizes a five percent increase in its average real estate price. HSR promotes the growth of second-tier cities by making them more livable/desirable–and, of course. Collects taxes on the increased revenues that go to repay bonds.

• HSR helps rural areas profit from their natural resources by bringing business opportunities and tourists–while reducing rural isolation.
• Chinese train-makers have absorbed imported technologies quickly, localized production processes and began competing in the export market.
• HSR uses less energy to transport people and goods on a per unit basis and can draw power from renewables. While automobiles and aircraft are more reliant on imported petroleum.

• This cuts billions from China’s energy import bills.

The system has proved its value by boosting social welfare and lifting GDP growth by ten percent so engineers have launched the next stage. The ‘8+8 network,’ twenty-four thousand miles of track using entirely indigenous technology that. By 2025, will carry three billion passengers at three hundred mph to every city.

They are also building five 120 mph magnetic levitation commuter lines. Whose trains, with no moving parts, will carry a thousand commuters in vibration-free, air-conditioned silence. A four-hundred mph maglev, designed for transcontinental use, will begin testing next year.

The program offers a stark contrast to the three-hundred-mile London-Paris Eurostar. Which cost $12 billion to build, double the original estimate, and was financed by shareholders and debt.

Officially opened on 6 May 1994, the line lost a billion dollars in its first year because of disappointing passengers and freight revenue and interest charges on its debt. Placed into bankruptcy in 2006, the project appeared to validate neoliberal criticisms: infrastructure–even if it benefits millions of people–is unprofitable. China’s experience suggests otherwise: if planners are free to approach them holistically, infrastructure can be hugely profitable–for the nation as a whole.

Though the Three Gorges Dam is the most charismatic of the nation’s mega-projects and high speed rail is. The most visible, both are dwarfed by the prosaically named South-North Water Diversion Project.

In 1954 Mao said, “There’s plenty of water in the South but not much in the North. If at all possible, borrowing some water would be helpful.”

Engineers found that ninety-six percent of the Yangtze flows into the Pacific and proposed to move enough water. Seven hundred miles to Beijing annually refill a dam one hundred miles long, ten miles wide and a mile deep.

The first leg, completed in 2014, runs through shelter forests and delivers seventy percent of Beijing’s water[22]. The just-completed second leg passes under the Yellow River and delivers twenty-five billion tonnes of water annually. Seven percent of China’s entire water consumption–to parched Hebei Province. The project required resettling at least 330,000 people. In central China but has boosted Hebei’s GDP sufficiently to repay its $48 billion cost in eighteen years.

The western route, still in the feasibility study stage, will move four billion cubic meters of water (three times New York City’s annual consumption). From the Yangtze River headwaters into the headwaters of the Yellow River by crossing. So, the Tibetan and Yunnan Plateaus through huge dams and long tunnels.

In addition, there are proposals to divert about two-hundred billion cubic meters of water annually. From the upstream sections of six rivers in southwestern China, including the Mekong. The Yarlung Zangbo (Brahmaputra) and the Salween to the Yangtze and Yellow rivers and, ultimately. To the dry areas of northern China through a system of reservoirs, tunnels and natural rivers.

Moving water to Beijing (or anywhere) uses immense amounts of energy so, knowing that conventional sources of power were environmentally unsustainable, planners have replaced conventional coal-fired plants with ultra-low emissions units,[23] twenty percent more efficient and thirty percent less polluting than ours, by using the fuel resulting fuel savings to pay them off in fifteen years (they are also replacing many coal fired plants with mass-produced 1000 MW[24] nuclear plants for $12 billion each, one-third of the international price).

But the world’s real pollution villains are fifteen hundred, each generating 1,000 MW. That burn coal and generate thirty percent of Earth’s carbon dioxide emissions. So planners chose to replace their furnaces with, 1,000 MW reactors made of uranium-cored, graphite ‘pebbles’ to heat their boilers.

A factory is producing Pebble Bed Reactors, PBRs. In modules for shipment to the giant power plants at a cost of one billion dollars each.

The upgraded, pollution-free plants will retrain current staffs and use existing cooling water. Roads, railroad tracks and transmission lines to deliver clean power, cutting global CO2 emissions by one-third. The first production unit comes online in 2021.

Hard on the heels of the PBRs, Oak Ridge National Laboratory and the Chinese Academy of Sciences. And are collaborating on a thorium-powered plant for 2030. Because ten thousand tons of plentiful thorium can produce as much energy as. So, the world’s annual consumption of coal, oil, natural gas and uranium combined. Thorium’s inherent safety allows a small footprint, low fuel cost. Little residue, and high energy efficiency–a promising alternative to uranium-based plants.

Yet for all its nuclear prowess, China’s most lasting energy contribution may be in renewables.

Says the EU, “Chinese research institutions are considerably ahead of their European and US peers in sustainable energy innovation. But, Including wind, ocean and solar power as well as smart grids and intelligent buildings. China has cut solar panel costs by ninety-five percent. Since 2010 and produces enough panels annually to replace the entire installed base of Europe and America.

Along the way, it solved the problem of delivering the clean power from remote, sunny deserts to coastal cities: twenty-five thousand miles of ultra high voltage, UHV[25], cables that carry twice Britain’s entire electricity capacity. Work has commenced connecting the Southeast Asian nations into a mega-grid capable of directing power from wherever it is generated to wherever it is needed.

Modern engineering demands immense computing power, too, and China has two-thirds of the world’s fastest computers.

The designer of the world’s first one-hundred petaflop machine, Lu Yutong, is building another, ten times faster, for 2021. Her colleague, Pan Jianwei, built a 3,000 mile, uncrackable. Quantum-encrypted communications network that connects the nation’s government agencies, banks and insurance companies. Jonathan Dowling, professor of physics at USTC Shanghai says, “I predict China will go black in two to three years.

We won’t be able to read anything.” For 2030 Dr. Pan is planning a quantum computer a million times more powerful than all the computers on earth today that will, he says, move the world from the digital era to the quantum age and provide enough computing power to solve every clean energy problem.

So, engineers are solving mega-problems in space, too. Until now, operators abandoned satellites after fifteen years because regular repositioning exhausts their fuel.

China recently demonstrated the first satellite refuelling in orbit and repositioned another without earth-based references using millisecond pulsars, stars that pulse with the precision of atomic clocks.

The Beidou GPS system, now with the largest constellation of satellites, provides global positioning with ten centimeter accuracy using China’s Cold Atomic Clock in Space. Beidou receiver chips are already embedded in every Chinese cellphone, bicycle, truck, tractor and automobile.

Japan’s Science and Technology Agency[26] says China achieved world leadership in engineering, computer science, mathematics and materials science in 2016. Francis Collins[27], Director of the US National Institutes of Health, said it leads in genomics, too. “If you ask me where is the largest investment in genomics in the world, it’s not in the United States. So, It is in Shenzhen, China, at BGI.” BGI plans to extend our useful human lifespan by five years, increase global food production by ten per cent, decode half of our genetic diseases, and cut birth defects by fifty per cent.

An AI genomics startup, iCarbonX, collects data on the genetics, environment and behaviour of millions of patients and uses AI to formulate the best treatments based on a holistic view of each.

ICarbonX’s ambition is to build an AI-based, one-stop health and wellness clinic handling everything from skincare and nutrition recommendations to genetic analysis–and even health and life insurance.

In 2018, low-margin industries like textiles, footwear and coal were shipped abroad while thorium power plants, quantum networks and online trust products were showered with largesse. Local governments created 5G Artificial Intelligence Trial Spots, unmanned transit solutions and ‘CityBrain’ traffic optimization Trial Spots and Beijing rolled out its goals for 2025.

China’s R&D spending surpassed the rest of the world’s combined and her share of global high tech exports[28] rose to thirty percent in 2017.

China’s Large Sky Area Multi-Object Fiber Spectroscopic Telescope (LAMOST) found a black hole so big that theory strains explain it, a new study reports.

A Chinese-led team discovered a stellar-mass black hole that appears to be 68 times heftier than Earth’s sun — nearly three times bigger than the heaviest such objects should be, according to current thinking.



[1] Mencius, Confucius’ principle disciple, was born a century after the Master’s death.

[2] The Enigma of China’s Growth. Zhiming Long and Rémy Herrera. Monthly Review, Dec 1, 2018

[3] Physical Capital Estimates for China’s Provinces, 1952-2015 and Beyond. Carsten A. Holz, Sun Yue. Productive capital stock measures the capital services provided by capital stock like machinery, tools, industrial buildings, dams and railroads.

[4] Speech By Chairman of the Delegation of the People’s Republic of China, Teng Hsiao-Ping, At the Special Session of the U.N. General Assembly. April, 10, 1974, convened by Algeria to discuss Raw materials and Development.

China’s Charismatic Mega-Projects

[5] During his southern inspection tour in early 1992, Deng addressed common misgivings and confusions about China’s reform and development.

[6] When a network effect is present, the value of a product or service increases according to the number of others using it–as we see with the Internet.

[7] The General Theory of Employment, Interest and Money (1935). Book 4, Chapter 12, Section 8, p. 164

[8] Economic Growth and Distribution in China . Cambridge University Press, 1978

[9] The return earned by a stock above and the risk free rate of return–usually the return on short-term government treasury bills.

[10] Plan V. The Economist. Nov. 5, 2016

[11] Demystifying the Chinese Economy. Justin Yifu Lin. Cambridge University Press

[12] Decentralized Authoritarianism in China. Pierre F Landry. Cambridge University Press.

[13] Beyond Ownership: State Capitalism and the Chinese Firm. Curtis Milhaupt, Wentong Zheng. Geo. L.J. 665, 671 (2015).,

[14] Top Five Banks Are in Asia. Financial News Asia, November 27, 2019. Forbes Global 500 2018

[15] Companies with insufficient profits to cover interest payments and repeatedly refinance their loans:1,439 EU, 923 USA, 431 China. Nikkei.

[16] ”Is Government Spending a Free Lunch? — Evidence from China.” Federal Reserve Bank of St. Louis Working Paper. Xin Wang and Yi Wen. https://research.stlouisfed.org/wp/more/2013-013

[17] The pros and cons of Confucian values in transport infrastructure development in China Martin de Jong. Policy and Society 31 (2012) 13–24

[18] J.M. Keynes letter to Friedrich A. von Hayek, June 28, 1944. In the Friedrich Hayek Collection at the Hoover Institution, Stanford University.

[19] The Sui Dynasty (581-618 CE) had only two reigning emperors but reunified the Northern and Southern Dynasties and built Jīng-Háng Dà Yùnhé: the ‘Beijing–Hangzhou Grand Canal,’ the longest and oldest canal on earth.

[20] “The economic rate of return of the network as it was in 2015 is estimated at 8 percent, well above the opportunity cost of capital..” China’s High-Speed Rail Development.

By Martha Lawrence, Richard Bullock, and Ziming Liu. © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433

[21] Market potential is ‘a geographic area’s access to markets for inputs and outputs’.

[22] Beijing’s groundwater level stabilized in 2015, rose 0.52 meters in 2016, 0.26 meters in 2017, and 1.94 meters in 2018. By 2019, it had stored a trillion cubic meters and met its designed cost goal. Water supply eco-economic benefit evaluation of middle route of south-to-north water diversion project in Hebei Water-recipient Area. Y X Wang, L Cheng, H L Tian, X H Liu.

[23] “Substantial emission reductions from Chinese power plants after the introduction of ultra-low emission standards.” Nature Energy on Oct. 7, 2019.

[24] Sufficient to power one million American homes.

[25] China has 21 UHV transmission lines–capable of operating at greater than 1 million volts AC–transmitting power produced in the resource-rich West to the industrial East. 63% of the country’s total clean-energy power transmission moves over UHV lines.

[26] China joins US as top influencer in science. NIKKEI. JUNE 13, 2017 09:00 JST

[27] NIH Director: China Leads U.S. in Genomic Research. By Greg Slabodkin. Health Data Management, September 11 2014

[28] America’s share of global high tech exports fell from nineteen percent to seven percent.

1. United States Budgetary Costs and Obligations of Post-9/11 Wars through FY2020: $6.4 Trillion. Neta C. Crawford, Watson Institute of Public Affairs, Brown University; Boston University, November 13, 2019 ↑

HOW TO SPEND $6.4 TRILLION

Two Ways to Use Money

I believe in the transformational power of liberty. Therefore, i believe that a free Iraq is in this nation’s interests. I believe a free Afghanistan is in this nation’s interest. George W. Bush, Oct 1, 2004.

Since 2001, the United States has appropriated, and is obligated to spend, $6.4 Trillion through Fiscal Year 2020 in budgetary costs related to and caused by the post-9/11 wars—an estimated $5.4 Trillion in appropriations in current dollars and an additional minimum of $1 Trillion for US obligations to care for the veterans of these wars through the next several decades^[1].

That’s one way. China decided on the other way.

***

Without constant means, most people will not have constant hearts and, lacking constant hearts, will go astray, fall into excess, and become desperate. Punishing them after they have broken the law is setting a trap for the people. So the government must take responsibility for both their material and moral wellbeing. The people’s interests must always come first; the rulers’ interests come last. Mencius, 280 BC.

Since 2001 China has invested twenty-five trillion RMB ($6.4 trillion PPP) in infrastructure development. This is a partial report on what that spending produced.

Though the concept of financial justice has been integral to Chinese thought for millennia, Mao first made it a national policy in 1949 and Xi Jinping made it a centennial goal for 2049. If it succeeds, China will have accomplished the most complete economic transformation in world history–and the fastest. Great Britain took almost two centuries to double per capital industrial output, the US took fifty-three years. China takes just twelve.

China’s productive capital stock[3] has increased by nine percent annually compounded for sixty-five years, an unequalled record.

Then, in 1978, a new leader seemed to abandon Mao’s principles and forced capitalism on a society traditionally suspicious of it. Why?

Planners told Deng[4] Xiaoping that, by maintaining 6.3 percent annual growth, China would remain vulnerable to foreign attack until 2040 but, by adding capitalism to the economic mix, the country could be invulnerable by 2020.

Willing to trade socialist principles for safety, Deng told the United Nations, “Unless we develop, China will be bullied. For us, development is the only hard truth.” Acknowledging that this would create great inequality among his countrymen, he told[5] told them, “We should allow some regions and people to get rich first and gradually push for common prosperity later.”

Since ‘later’ will begin in 2021, this is an appropriate opportunity to examine how we got here and do so through the lens of infrastructure development–particularly a variety that Chinese dynasties have gloried in for thousands of years: charismatic megaprojects.

Following Deng’s announcement, Western governments lifted their embargoes. Corporate profits soared as CEOs shuttered corporate labs, transferred jobs and knowhow to China, and lobbied for legislation that would place them beyond the reach of national tax authorities, weaken domestic regulations, reduce taxes, and privatize potentially profitable social services.

By underinvested in productivity during slumps and over-invested during booms, corporations created a series of bubbles and recessions, while governments borrowed to replace lost taxes, slashed R&D, and de-funded national laboratories.

 

Employment stalled, wages stagnated, infrastructure decayed, and educational attainment, social trust, and social cohesion declined.

China headed in the opposite direction. Invited to lecture China’s planners, Nobelists James Tobin and Milton Friedman explained America’s early investment in free universities, research, and infrastructure. The technocrats liked what they heard.

Instead withdrawing from the market, Beijing decided to retain macro-control of the economy by balancing long-term investment and consumption, setting international terms of trade, controlling inputs like energy and commodities, and regulating the cost and supply of labor, capital, land and raw materials. Using surpluses from rural areas to fund the industrialization that accumulated capital stock, they grew the economy by ten percent and capital stock by eleven percent annually.

They doubled real wages every decade by increasing productivity and doubled productivity with infrastructure, lowering the cost of living through investment and organizing resources so as to make the whole greater than the sum of its parts.

Infrastructure lowered living costs through urbanization and distribution, increasing consumption and raising equality and, thanks to the network[6] effect, the more infrastructure they built, the greater the benefit.

That the infrastructure would create debt bothered them not at all: every project would repay its costs–just as they had done since 272 BC. Besides, the economy is immune to Western-style, debt-fueled financial crises, partly because the financial system is state-owned and integrated and debt is incurred by state-owned institutions, and partly because the debt finances productive investment rather than consumption.

A US Federal Reserve study[16] suggest that China’s government debt quality is so high that it actually creates surplus capital.

Planners could also count on a cultural characteristic that meets one of J. M. Keynes[18] criteria for collective action, “Planning should take place in a community in which as many people as possible, both leaders and followers, wholly share your own moral position. Moderate planning will be safe if those carrying it out are rightly orientated in their minds and hearts to the moral issue.” Nowhere is this shared moral position more evident than in public forbearance of the dislocation caused by gigantic mega-projects: they are as popular today as they were twenty-three centuries ago.

In 272 BC Shu Province, Sichuan, faced a series of devastating floods. Every spring, meltwater burst the banks at a heavily silted stretch of the Min River but the river carried grain to frontier troops, so it could not be dammed. The Governor, Li Bing, spent eight years excavating a channel, sixty-feet wide and deep, through the solid rock of Mount Yulei and permanently diverted some of the flow onto a dry plain.

Overnight, the floods ceased and the plain became a rice bowl that fed the emperor’s troops who then united the country. Today, those two-thousand square miles of irrigated farmland still feed Chengdu’s fourteen million people and repay the project’s original cost every eight hours. Chinese gods, who are democratically elected, are expected to deliver tangible blessings: today a temple at the site honours Governor Li as God of Waters and millions come to burn incense before his statue.

Governor Li initiated a tradition: charismatic mega-projects to serve as monuments to dynastic greatness. The Sui Dynasty’s[19] thousand-mile Grand Canal (with pound locks to lift ships over mountains) cut national freight costs in half and ignited a fifty-year economic boom.

Few projects are as cost-effective as these but, traditionally, all require years of planning and decades of self-sacrifice, must pay their way, and cause controversy–and nowhere was controversy as strong and prolonged as that surrounding the Three Gorges Dam.

John L. Savage, from the United States Bureau of Reclamation, had surveyed the gorges in 1944 and proposed a ‘Yangtze River Project’ but it was not until the 1954 Yangtze River floods drowned thirty-three thousand people that Mao was inspired to write Swimming.

I have just drunk the waters of Changsha

And come to eat the fish of Wuchang.

Now I am swimming across the great Yangtze,

Looking afar to the open sky of Chu.

Let the wind blow and waves beat,

Better far than idly strolling in a courtyard.

Today I am at ease.

‘It was by a stream that the Master said

‘Thus do things flow away!’ ‘

Sails move with the wind.

Tortoise and Snake are still.

Great plans are afoot:

A bridge will fly to span the north and south,

Turning a deep chasm into a thoroughfare;

Walls of stone will stand upstream to the west

To hold back Wushan’s clouds and rain

Till a smooth lake rises in the narrow gorges.

The mountain goddess if she is still there

Will marvel at a world so changed.

The project’s cost, scale, environmental and social impacts were almost beyond imagination, a million people in its path feared for their future, and foreign experts condemned the plan as dangerous and impractical.

Congress, alarmed, demanded construction downstream of the Gezhouba Dam to prove the concept then, after the Gezhouba’s success, only two-thirds voted to fund the project–the narrowest margin ever recorded. Many accused Beijing of ‘ramming the project down people’s throats’.

Planners relocated thirteen cities, one-hundred forty towns, one-thousand six hundred villages and one-million three-hundred thousand people and created a reservoir so vast that it slows the rotation of the earth, irrigates 1.5 million acres, electrifies eighteen million homes (equivalent to America’s entire East Coast) and–as planners had projected–ended the Yangtze’s floods and repays its capital investment every four years.

Planners next invested $11.4 billion to license high-speed rail technology in 2004 and set to building a fifteen thousand mile network of the world’s fastest, safest trains.

Service began in 2007 and traffic has grown thirty percent annually ever since, reaching 3.5 billion in 2019, more than the rest of the world’s HSR traffic combined, and twice North America’s total air traffic. By 2016 the Beijing–Tianjin HSR line was providing one-hundred million 220 mph rides annually. Since every element of the network is cooperatively owned.

The network has exceeded its predictions–technically and financially–and the World Bank[20] calculates that it is covering its capital cost comfortably. Here are some revenues and savings:

• The more lines built, the more accurate predictions have become, leading to more valid financial models and precise bond pricing.
• Scale savings allow more profitable lines to subsidize lines serving remote, thinly populated areas.
• HSR construction creates skilled jobs and lifts demand for construction, steel and cement industries during the economic downturn: the Beijing–Shanghai HSR mobilized 110,000 workers. A surprising percentage of the investment comes back within twelve months as income and sales taxes rippling out from rail factories and construction sites.

• From mass-produced, unballasted rail sections to bridge pylons ordered by the meter, to engines and carriages, production and demand are tightly integrated to eliminate costly downtime. Bridge Girder Erector Machines lay 150’ prefabricated bridge girders in fifty minutes.

• Rents on the vast shopping complexes at multi-level railway stations pay off the bonds, as do proceeds from sale to developers of surrounding land and taxes from the associated increased commercial activity. In future, when new towns are built around existing ‘stations in the middle of nowhere,’ land sales, development and the increased tax base will also pay off the bonds.
• Passenger time-saving improves economic productivity and competitiveness over the long term by increasing the transport capacity of railways and linking labor markets. If 3.5 billion riders earning $3,000/mo. save four hours compared to automobile or plane travel, HSR will save $60 of productive time for each: a $210 billion boost to economic activity and tax revenues.
• Ticket revenues. Since the first line
  

  opened, ticket prices have stayed flat while average wages have almost tripled so that three times as many people can now afford HSR. They raise HSR revenue and free up older lines to carry more profitable freight.

• Urbanites order products from Alibaba in the morning and get them from the other side of the country in the evening thanks to HSR, boosting e-commerce, improving productivity and competitiveness, and generating increased taxes.
• The network delivers billions of advertising impressions to passengers whose incomes are one-third above the national average.
  

  Using an app, passengers aboard trains can order meals delivered to their seats at station stops. Concession revenues, snack carts, station concessions, drink dispensers help pay off bonds.

• HSR dramatically reduces noise, high-atmosphere pollution and CO2 emissions compared to conventional modes of travel, contributing directly to quality of life and indirectly to reducing atmospheric pollution and raising the value of surrounding land.
• HSR is responsible for sixty percent of the increase in market potential[21] for connected second-tier cities. A ten percent increase in a second-tier city’s market potential realizes a five percent increase in its average real estate price.

• HSR promotes the growth of second-tier cities by making them more livable/desirable–and, of course, collects taxes on the increased revenues that go to repay bonds.

• HSR helps rural areas profit from their natural resources by bringing business opportunities and tourists–while reducing rural isolation.
• Chinese train-makers have absorbed imported technologies quickly, localized production processes and began competing in the export market.
• HSR uses less energy to transport people and goods on a per unit basis and can draw power from renewables while automobiles and aircraft are more reliant on imported petroleum. This cuts billions from China’s energy import bills.

The system has proved its value by boosting social welfare and lifting GDP growth by ten percent so engineers have launched the next stage, the ‘8+8 network,’ twenty-four thousand miles of track using entirely indigenous technology that, by 2025, will carry three billion passengers at three hundred mph to every city.

They are also building five 120 mph magnetic levitation commuter lines whose trains, with no moving parts, will carry a thousand commuters in vibration-free, air-conditioned silence. A four-hundred mph maglev, designed for transcontinental use, will begin testing next year.

The program offers a stark contrast to the three-hundred mile London-Paris Eurostar, which cost $12 billion to build, double the original estimate, and was financed by shareholders and debt.

Officially opened on 6 May 1994, the line lost a billion dollars in its first year because of disappointing passengers and freight revenue and interest charges on its debt.

Placed into bankruptcy in 2006, the project appeared to validate neoliberal criticisms: infrastructure–even if it benefits millions of people–is unprofitable. China’s experience suggests otherwise: if planners are free to approach them holistically, infrastructure can be hugely profitable–for the nation as a whole.

Though the Three Gorges Dam is the most charismatic of the nation’s mega-projects and high speed rail is the most visible, both are dwarfed by the prosaically named South-North Water Diversion Project.

In 1954 Mao said, “There’s plenty of water in the South but not much in the North. If at all possible, borrowing some water would be helpful.” Engineers found that ninety-six percent of the Yangtze flows into the Pacific and proposed to move enough water seven hundred miles to Beijing annually refill a dam one hundred miles long, ten miles wide and a mile deep.

The first leg, completed in 2014, runs through shelter forests and delivers seventy percent of Beijing’s water[22]. The just-completed second leg passes under the Yellow River and delivers twenty-five billion tonnes of water annually–seven percent of China’s entire water consumption–to parched Hebei Province. The project required resettling at least 330,000 people in central China but has boosted Hebei’s GDP sufficiently to repay its $48 billion cost in eighteen years.

The western route, still in the feasibility study stage, will move four billion cubic meters of water (three times New York City’s annual consumption) from the Yangtze River headwaters into the headwaters of the Yellow River by crossing the Tibetan and Yunnan Plateaus through huge dams and long tunnels.

In addition, there are proposals to divert about two-hundred billion cubic meters of water annually from the upstream sections of six rivers in southwestern China, including the Mekong , the Yarlung Zangbo (Brahmaputra) and the Salween to the Yangtze and Yellow rivers and, ultimately, to the dry areas of northern China through a system of reservoirs, tunnels and natural rivers.

Moving water to Beijing (or anywhere) uses immense amounts of energy so, knowing that conventional sources of power were environmentally unsustainable, planners have replaced conventional coal-fired plants with ultra-low emissions units,[23] twenty percent more efficient and thirty percent less polluting than ours, by using the fuel resulting fuel savings to pay them off in fifteen years (they are also replacing many coal fired plants with mass produced 1000 MW[24] nuclear plants for $12 billion each, one-third of the international price).

But the world’s real pollution villains are fifteen hundred, each generating 1,000 MW, that burn coal and generate thirty percent of Earth’s carbon dioxide emissions.

So planners chose to replace their furnaces with, 1,000 MW reactors made of uranium-cored, graphite ‘pebbles’ to heat their boilers. A factory is producing Pebble Bed Reactors, PBRs, in modules for shipment to the giant power plants at a cost of one billion dollars each.

The upgraded, pollution-free plants will retrain current staffs and use existing cooling water, roads, railroad tracks and transmission lines to deliver clean power, cutting global CO2 emissions by one-third.

The first production unit comes online in 2021.

Hard on the heels of the PBRs, Oak Ridge National Laboratory and the Chinese Academy of Sciences and are collaborating on a thorium-powered plant for 2030 because ten thousand tons of plentiful thorium can produce as much energy as the world’s annual consumption of coal, oil, natural gas and uranium combined. Thorium’s inherent safety allows a small footprint, low fuel cost, little residue, and high energy efficiency–a promising alternative to uranium-based plants.

Yet for all its nuclear prowess, China’s most lasting energy contribution may be in renewables. Says the EU, “Chinese research institutions are considerably ahead of their European and US peers in sustainable energy innovation, including wind, ocean and solar power as well as smart grids and intelligent buildings.”

China has cut solar panel costs by ninety-five percent since 2010 and produces enough panels annually to replace the entire installed base of Europe and America. Along the way, it solved the problem of delivering the clean power from remote, sunny deserts to coastal cities: twenty-five thousand miles of ultra high voltage, UHV[25], cables that carry twice Britain’s entire electricity capacity.

Work has commenced connecting the Southeast Asian nations into a mega-grid capable of directing power from wherever it is generated to wherever it is needed.

Modern engineering demands immense computing power, too, and China has two-thirds of the world’s fastest computers. The designer of the world’s first one-hundred petaflop machine, Lu Yutong, is building another, ten times faster, for 2021.

Her colleague, Pan Jianwei, built a 3,000 mile, uncrackable, quantum-encrypted communications network that connects the nation’s government agencies, banks and insurance companies. Jonathan Dowling, professor of physics at USTC Shanghai says, “I predict China will go black in two to three years. We won’t be able to read anything.”

For 2030 Dr Pan is planning a quantum computer a million times more powerful than all the computers on earth today that will, he says, move the world from the digital era to the quantum age and provide enough computing power to solve every clean energy problem.

Engineers are solving mega-problems in space, too. Until now, operators abandoned satellites after fifteen years because regular repositioning exhausts their fuel. China recently demonstrated the first satellite refueling in orbit and repositioned another without earth-based references using millisecond pulsars, stars that pulse with the precision of atomic clocks.

The Beidou GPS system, now with the largest constellation of satellites, provides global positioning with ten centimetre accuracy using China’s Cold Atomic Clock in Space. Beidou receiver chips are already embedded in every Chinese cellphone, bicycle, truck, tractor and automobile.

Japan’s Science and Technology Agency[26] says China achieved world leadership in engineering, computer science, mathematics and materials science in 2016. Francis Collins[27], Director of the US National Institutes of Health, said it leads in genomics, too.

“If you ask me where is the largest investment in genomics in the world, it’s not in the United States. It is in Shenzhen, China, at BGI.” BGI plans to extend our useful human lifespan by five years, increase global food production by ten per cent, decode half of our genetic diseases, and cut birth defects by fifty per cent.

An AI genomics startup, iCarbonX, collects data on the genetics, environment and behaviour of millions of patients and uses AI to formulate the best treatments based on a holistic view of each. ICarbonX’s ambition is to build an AI-based, one-stop health and wellness clinic handling everything from skincare and nutrition recommendations to genetic analysis–and even health and life insurance.

In 2018, low-margin industries like textiles, footwear and coal were shipped abroad while thorium power plants, quantum networks and online trust products were showered with largesse.

A Chinese Water Project

Local governments created 5G Artificial Intelligence Trial Spots, unmanned transit solutions and ‘CityBrain’ traffic optimization Trial Spots and Beijing rolled out its goals for 2025.

China’s R&D spending surpassed the rest of the world’s combined and her share of global high tech exports[28] rose to thirty percent in 2017.

China’s Large Sky Area Multi-Object Fiber Spectroscopic Telescope (LAMOST) found a black hole so big that theory strains explain it, a new study reports.

A Chinese-led team discovered a stellar-mass black hole that appears to be 68 times heftier than Earth’s sun — nearly three times bigger than the heaviest such objects should be, according to current thinking.



[1] Mencius, Confucius’ principle disciple, was born a century after the Master’s death.

[2] The Enigma of China’s Growth. Zhiming Long and Rémy Herrera. Monthly Review, Dec 1, 2018

[3] Physical Capital Estimates for China’s Provinces, 1952-2015 and Beyond. Carsten A. Holz, Sun Yue. Productive capital stock measures the capital services provided by capital stock like machinery, tools, industrial buildings, dams and railroads.

[4] Speech By Chairman of the Delegation of the People’s Republic of China, Teng Hsiao-Ping, At the Special Session of the U.N. General Assembly. April, 10, 1974, convened by Algeria to discuss Raw materials and Development.

[5] During his southern inspection tour in early 1992, Deng addressed common misgivings and confusions about China’s reform and development.

[6] When a network effect is present, the value of a product or service increases according to the number of others using it–as we see with the Internet.

[7] The General Theory of Employment, Interest and Money (1935). Book 4, Chapter 12, Section 8, p. 164

[8] Economic Growth and Distribution in China . Cambridge University Press, 1978

[9] The return earned by a stock above and the risk free rate of return–usually the return on short-term government treasury bills.

[10] Plan V. The Economist. Nov. 5, 2016

[11] Demystifying the Chinese Economy. Justin Yifu Lin. Cambridge University Press

[12] Decentralized Authoritarianism in China. Pierre F Landry. Cambridge University Press.

[13] Beyond Ownership: State Capitalism and the Chinese Firm. Curtis Milhaupt, Wentong Zheng. Geo. L.J. 665, 671 (2015).,

[14] Top Five Banks Are in Asia. Financial News Asia, November 27, 2019. Forbes Global 500 2018

[15] Companies with insufficient profits to cover interest payments and repeatedly refinance their loans:1,439 EU, 923 USA, 431 China. Nikkei.

[16] ”Is Government Spending a Free Lunch? — Evidence from China.” Federal Reserve Bank of St. Louis Working Paper. Xin Wang and Yi Wen. https://research.stlouisfed.org/wp/more/2013-013

[17] The pros and cons of Confucian values in transport infrastructure development in China Martin de Jong. Policy and Society 31 (2012) 13–24

[18] J.M. Keynes letter to Friedrich A. von Hayek, June 28, 1944. In the Friedrich Hayek Collection at the Hoover Institution, Stanford University.

[19] The Sui Dynasty (581-618 CE) had only two reigning emperors but reunified the Northern and Southern Dynasties and built Jīng-Háng Dà Yùnhé: the ‘Beijing–Hangzhou Grand Canal,’ the longest and oldest canal on earth.

[20] “The economic rate of return of the network as it was in 2015 is estimated at 8 per cent, well above the opportunity cost of capital..” China’s High-Speed Rail Development. By Martha Lawrence, Richard Bullock, and Ziming Liu. © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433

[21] Market potential is ‘a geographic area’s access to markets for inputs and outputs’.

[22] Beijing’s groundwater level stabilized in 2015, rose 0.52 meters in 2016, 0.26 meters in 2017, and 1.94 meters in 2018. By 2019, it had stored a trillion cubic meters and met its designed cost goal. Water supply eco-economic benefit evaluation of middle route of south-to-north water diversion project in Hebei Water-recipient Area. Y X Wang, L Cheng, H L Tian, X H Liu.

[23] “Substantial emission reductions from Chinese power plants after the introduction of ultra-low emission standards.” Nature Energy on Oct. 7, 2019.

[24] Sufficient to power one million American homes.

[25] China has 21 UHV transmission lines–capable of operating at greater than 1 million volts AC–transmitting power produced in the resource-rich West to the industrial East. 63% of the country’s total clean-energy power transmission moves over UHV lines.

[26] China joins US as top influencer in science. NIKKEI. JUNE 13, 2017 09:00 JST

[27] NIH Director: China Leads U.S. in Genomic Research. By Greg Slabodkin. Health Data Management, September 11 2014

[28] America’s share of global high tech exports fell from nineteen percent to seven percent.

1. United States Budgetary Costs and Obligations of Post-9/11 Wars through FY2020: $6.4 Trillion. Neta C. Crawford, Watson Institute of Public Affairs, Brown University; Boston University, November 13, 2019 ↑

China Huawei and the Next Revolution