Li Xunlei, Chief Economist at Zhongtai Financial: “The conclusion is clear: the places that built the most expressways were often those where freight demand grew the least.” The East is Red has translated an article by Li Xunlei on how China’s infrastructure spending may have served the economy poorly, something he seems to have been worrying about even longer than I have. He attributes local officials’ enthusiasm for infrastructure partly to the belief that “if you want to get rich, build roads first,” and partly to the tendency to measure performance by highly visible projects rather than underlying problems such as population outflows and weak local industries. The underlying mistake is common, and not just in China. Policymakers too often treat infrastructure spending as a source of growth, so that when an economy faces institutional, demographic or other constraints that keep growth below expectations, their response is to increase infrastructure spending in order to goose economic activity. But this often has it backwards. If those constraints limit productivity growth, the value of additional infrastructure is likely to be lower, not higher. Infrastructure spending, in other words, is not a source of growth. It is a cost of growth, and it makes an economy richer only when the productivity gains it generates exceed the cost of building and maintaining it. Otherwise it makes the economy poorer. And the fact that local-government debt has grown so much faster than provincial GDP for nearly two decades suggests how years of overinvestment can leave less productive regions deeply indebted, with spectacular infrastructure but inadequate economic activity to support it. It is encouraging that more and more Chinese economists and policy advisers are questioning this model. But changing it will be difficult. Infrastructure projects reliably produce a short-term boost to activity, making them especially tempting when growth slows and unemployment rises, until debt constraints finally make further spending impossible.