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Broken China: will infrastructure ills undermine its IT ambitions?

7 Feb 2008 12:00 AM | Anonymous
As we reported in our exclusive news analysis last week, the severe winter storms have battered the Chinese economy just as much as its stranded people. The immediate financial costs of the storms to the sleeping dragon of outsourcing and technology skills – not to mention their long-term implications – are now becoming clear.

Investment banks Goldman Sachs and Merrill Lynch have both issued research notes warning that the sluggish government response to the crisis, stalled transport systems, and workers left queuing at railway stations in their thousands may be evidence that China is not spending enough on its infrastructure to be a credible economic superpower.

While there may be an element of international politics at play here – weather devastation and failed transport links are hardly unknown in the West, after all – it is certainly true that China has until recently been regarded as a paragon of inward investment, albeit one flawed by what I like to call the 'push-me, pull-you' nature of its party politics versus its market ambitions.

Figures released by Merrill Lynch, however, suggest that infrastructure spending has actually slowed since 2006. Meanwhile, three-quarters of a million homes have been damaged or destroyed, power outages have left millions stranded, or simply without power, and the effect on crops can only be guessed at for now.

Some median estimates have put the cost to the Chinese economy at $4.5 billion, but that seems a conservative figure. Other statistics are not in doubt: China is home to one-fifth of the world's population, and when combined with India, to nearly 40% of the population.

Ironically, all this may be good news for volatile global stock markets in the short to medium term, even if it is a blow to businesses working in China (not to mention governments concerned with keeping a lid on carbon emissions).

Just as the US has been the engine of the world economy in terms of dust-bowlers, high-rollers and super-bowlers spending the dollars in their pockets, so China is now the engine room driving global demand for energy and raw materials for its super-heating economy.

If Beijing takes seriously the international pressure to redouble its inward investment on transport, energy and utilities, that's a massive amount of buying power released from international isolation.

The long-term environmental impact of this is something that must be urgently considered and planned for in the West and elsewhere, just as China is learning the economic imperatives of crisis management and scenario planning in its centrally driven efforts to be the 21st century economy to watch.

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