China is leading the world in infrastructure investment. McKinsey Quarterly now compiled a by-the-numbers summary to capture the country's impressive development.
According to McKinsey, investment in rural roads grew by a massive 51 percent annually between 2001 and 2004, and China’s leadership has charted equally ambitious plans for the future.
“Its goal is to bring the entire nation’s urban infrastructure up to the level of infrastructure in a middle-income country, while using increasingly efficient transport logistics to tie the country together,” authors Yougang Chen, Stefan Matzinger, and Jonathan Woetzel said.
But global companies must know that the potential costs and benefits of rebalancing the world’s second-largest economy are high and will affect industries not only domestically but also around the world. “The degree of impact depends largely on the policies that Beijing chooses to implement,” said McKinsey's Michael Pettis.
“While China’s leadership – under both President Xi Jinping and his predecessor, Hu Jintao – has made it clear that it understands the risks of rebalancing, the process won’t be easy. Companies must be ready,” he added.
“In modern history, no country that has experienced an investment-driven growth “miracle” has avoided a slowdown (such as Japan’s after 1990) that surprised even the pessimists, and it is hard to find good reasons to think China will be an exception.”
According to Pettis, industries that profit from building infrastructure or manufacturing capacity will suffer during that process. “Rebalancing will sharply reduce the growth of aggregate spending on construction equipment, heavy manufacturing, transportation, and other sectors that have historically benefited from China’s explosive surge in investment,” he said.
Among these sectors, however, government policy will influence which will suffer more and which less. And while it’s still too early to say exactly which way the government will go, “there is no question that it will drive or retard growth in many industries around the world.”