The road to success

Published: 3 March 2010

China is taking the fast lane to economic growth by rapidly expanding its highway system

In 1956, the United States started building a national interstate highway system that would change the face of the nation, making Americans more mobile than ever before, and at the same time generating myriad economic benefits for the whole country.

At the time, it was the largest public works programme in history and the road network has since been described as "the best investment a nation ever made".

Today, China, a country very similar in size to the US, is hoping that an infrastructure spending spree can help sustain the country's long record of expansion and rising prosperity.

In 2005, the Chinese government announced a visionary plan to build a network of expressways by 2035 that would connect all provincial capitals and cities with a population of over 200,000. China is on track to expand the length of expressway to 65,000km by the end of 2010 and is expected to meet the next goal of reaching 85,000km by 2020.

Then, in November 2008, the road-building programme was given even greater impetus when the government announced its vast RMB4.3 trillion (USD586 billion) stimulus package following the international financial crisis which, at the time, was threatening to slow China's booming economy. Some 38 per cent of the package has been allocated to infrastructure projects, including roads.

By the end of 2008, China's expressway network had become the world's second-longest at 60,300km, second only to the US. The economy is already seeing the benefits as small towns and villages get access to a wider market, costs fall, delivery times are cut and labour mobility improves.

The effects on the economy have been many and varied, both macro and micro, and some changes are smaller than others. The Asian Wall Street Journal reported that an Asian Development Bank transport specialist visited a village near the western city of Xian where chicken farms had taken off after a new highway opened. This meant that the farmers could take eggs to the market without them getting broken along the way.

Tourism is another area of the economy that should benefit as the road system is upgraded. As disposable incomes expand, China's highway network will open up a new era of domestic tourism, in turn increasing demand for good quality hotel accommodation.

At the same time, the nation's car sales surged 46 per cent to 13.6 million vehicles in 2009, passing US sales to make it the world's largest. China, whose roads served less than one million privately owned cars just three decades ago, is estimated to be on track to overtake the US in overall car ownership by 2017.

The huge construction boom has been very good news for the country's infrastructure companies. HSBC analyst Ken Ho, who covers a number of infrastructure companies in China, believes the growth is set to continue for many years.

"The beneficiaries of increasing investment in the road network include companies that are toll road constructors, operators and all related service providers such as gas stations and service stations," Mr Ho said. "On a broader scale, increasing connectivity will stimulate demand for automobiles, gasoline, logistics services and tour services. The value these infrastructure investments are generating cannot be underestimated."

One example is the Hangzhou Bay Bridge that opened recently. The bridge is the longest of its type in the world and it has shortened the travelling distance between Ningbo and Shanghai by 120km (from 400km to 280km). The average driving time has been cut from four hours to two and a half. In turn, the cost of doing business has been slashed by reducing transportation costs and delivery times.

But it is not just the prosperous eastern parts of the country that are benefiting from the improved road network. The Economist reported in February that the upgrading of the Friendship Highway connecting Kathmandu, the capital of Nepal, with Lhasa, the capital of Tibet, has cut travel time by lorry from three days to one and a half.

The old Chinese saying - "To get rich, build roads first" - has never been truer.