China's airport construction investment has the risk of misallocating investment

China plans to invest $70 billion by 2013 to expand airport throughput, but a study by consulting firm McKinsey shows that the plan has the risk of misallocating investments, that is, over-investment in poorer western provinces. In some fast-growing coastal provinces, there is insufficient investment.

McKinsey believes that only 20 to 30 of the 97 new airport projects that the Chinese government plans to build by 2020 will address the expected lack of throughput, providing "attractive" investment opportunities.

Other projects are for political purposes and extensively develop airports in inland areas without actual demand.

Evan Auyung, a McKinsey consultant who participated in the research report, said: "Although China has extensive experience in central planning, it faces challenges in how to allocate such huge investments in the most effective way. This is especially true when the infrastructure is growing steadily."

McKinsey did not disclose a detailed analysis of the airports, but the report mentioned that in the fast-growing northeastern province of Shandong, the government's planned airport throughput seems to be lower than expected.

“China is really trying to speed up construction to create jobs, so the new airport throughput will almost certainly exceed demand,” said Yuwa Hedrick-Wong, Master Card’s tracking of economic development in the Asia Pacific region. . He took a comparison with Shanghai Pudong Airport. Pudong Airport was “almost empty for four or five years” before it established its status as an international aviation hub.

“In other countries, these projects will fail if they don’t pay off quickly, but in China they can survive,” said Wang Yueshen.

In the early 1990s, the ambitious Chinese local government launched a large number of underutilized and repetitive airport projects. After that, the central government retracted the airport planning rights.

But as part of the new development plan, Beijing has handed over most of the responsibility for project financing to local governments. McKinsey estimates that less than 5% of the $70 billion in planned investment will come directly from the central government.

Peter Morris, chief economist at aviation consultancy Ascend, cautioned the McKinsey report: "A huge, shiny airport is seen by local governments as a sign of success." Ascend is headquartered in London.

In addition to the new airport, the Chinese government has also launched 46 major airport expansion projects.

Translator / Li Wen

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