Infrastructure development in China:The cas of electricity,highways,and railways
Chong-En Bai a,b,*,Yingyi Qian a,c
a
School of Economics and Management,Tsinghua University,Beijing 100084,China b
National Institute for Fiscal Studies,Tsinghua University,Beijing 100084,China c
University of California,Berkeley
a r t i c l e i n f o Article history:
Received 21October 2009
Available online 27October 2009JEL classification:H44L9O14R42R48
Key words:Infrastructure Electricity Highway Railway China
a b s t r a c t
Bai,Chong-En,and Qian,Yingyi —Infrastructure development in China:The cas of elec-tricity,highways,and railways
清明节祭祀This paper considers the development of the electricity,highway,and railway ctors in China,with special emphasis on investment incentives.Statistical summary of the devel-opment of the ctors is offered,followed by a detailed description of the institutional background,including investment and pricing mechanisms.We also analyze investment incentives bad on the institutional background and prent our estimates of the rates of return to investment in the ctors.It is obrved that some of the current practices may rve as uful transitional arrangements even though they are not desirable in the long run.Journal of Comparative Economics 38(1)(2010)34–51.School of Economics and Management,Tsinghua University,Beijing 100084,China;National Institute for Fiscal Studies,Tsinghua University,Beijing 100084,China;University of California,Berkeley.
Ó2010Published by behalf of Association for Comparative Economic
Studies.
1.Introduction
There is a large literature studying the importance of infrastructure to economic development.1However,there is not much systematic rearch on how infrastructure is developed.Many issues are worth consideration.One of the issues is investment incentives.Infrastructure may yield significant social returns.However,this does not guarantee that investors of infrastructure projects can get sufficient private return.How can one provide incentives for private investment?If there is not sufficient private incentive to invest in infrastructure,are there enough incentives for politicians and bureaucrats to over-come many difficulties to make public investment in infrastructure?To address the issues,one has to understand the insti-0147-5967/$-e front matter Ó2010Published by behalf of Association for Comparative Economic Studies.doi:10.1016/j.jce.2009.10.003
*Corresponding author.Address:School of Economics and Management,Tsinghua University,Beijing 100084,China.Fax:+861062785562.E-mail address:baichn@m.tsinghua.edu (C.-E.Bai),qianyy@m.tsinghua.edu (Y.Qian).1
One commonly ud approach is to estimate the production function with infrastructure as an input.Some find significant returns to investment in infrastructure (for example,Aschauer,1989;Munnell,1990;Rubin,1991;Holtz-Eakin,1994),while others do not find signific
ant returns to such investment (for example,Hulten and Schwab,1991;Tatom,1991;Munnell,1992;Kavanagh,1997).Another approach is to estimate the cost function.Using this approach,Morrison and Schwartz (1996)and Lynde and Richmond (1992)both find evidence supporting a significant role of public infrastructure in productivity growth.Li (2005)adopts a third approach and us the changes in interregional price gaps before and after the construction of a railway in China to estimate the social return to infrastructure investment.He finds significant return to the investment.Other studies on the role of infrastructure in China include Demurger (2001)and Fan and Zhang (2004)and they both find positive relationship between infrastructure and economic growth.There are also findings that suggest that infrastructure increas property value (Haughwout,2002),reduces inventory costs (Shirley and Winston,2004),and cuts the cost of trucking firms (Keeler and Ying,1988).
Journal of Comparative Economics 38(2010)34–51
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C.-E.Bai,Y.Qian/Journal of Comparative Economics38(2010)34–5135 tutions surrounding infrastructure.Who is allowed to invest in infrastructure?What are the restrictions faced by the investors? In the ca infrastructure is built with private investment,how is the price for the u of infrastructure is regulated?In the ca of public investment,what is the environment faced by the polit
icians and bureaucrats?Without a clear understanding of the institutions,it is impossible to understand the development of infrastructure.
Before we can get the full picture,it is uful to start with a few cas.This paper attempts to contribute to thisfirst step by investigating the development of the electricity,highway,and railway ctors in China.We will not consider urban infra-structure becau relevant information is more difficult tofind and there are also too many aspects of urban infrastructure for us to cover in this paper.We will not consider the communication ctor becau its development ems less problematic than other ctors of infrastructures and certain success has been achieved in the ctor in many developing countries. Among the modes of transportation,we will not consider waterways,ports,civil aviation,or pipelines.Instead,we focus on the ctors of electricity,highways and railways becau they exhibit unique Chine characteristics and they also offer interesting contrast among them.
For each ctor we consider,wefirst offer a statistical summary of its development in China.We prent the capacity and the output of the ctor.We not only offer a snapshot of the current situation,we also provide relevant historical statistics.
The paper also provides a detailed institutional background for the development of each ctor.We particularly empha-size institutions related to investment incentives.The include investment policies and the pricing of the rvices.Again, the history of the institutions is prented,and the current situation is described in greater details.
Bad on the institutional background,we analyze investment incentives and existing problems in each ctor.Some practices are part of the solution to providing investment incentives and at the same time sources of economic costs in terms of distortion of investment decision and high prices paid by consumers,and social and political costs in terms of corruption and income inequality.We discuss both the benefits and costs of the practices.
Finally,we prent of estimates of the rates of return to investment for each ctor.The estimates provide quantitative indication about incentives for investment outside of government budget.
This paper does not consider a few aspects related to investment in the ctors.One is the cost of acquiring the land needed for the development.Another is the cost of complying with environmental regulations and other regulations.We focus more on the benefits of investment to the investors rather than the costs.The cost issues await future rearch.
2.The electricity ctor
2.1.Statistical summary
The development of the electricity ctor has basically kept in pace with the growth of real GDP(Fig.1and Table1).From 1978to2007,the annual growth rates of installed capacity and the amount of electricity generated were9.1%and9.2% respectively.In the same period,the annual growth rate of real GDP was9.8%.In2007,the total amount of electricity gen-erated was3256billion kW-h,reprenting a14.44%increa over the previous year.Around83%of the output was from thermal power,15%hydro power,and2%nuclear power.The total installed capacity was713.3GW.
On the demand side,houhold consumption accounts for11%of the total.Industry consumes76.6%of the total,rvices 9.8%,and agriculture2.6%,with industrial consumption,especially that by the heavy industry,growing the fastest.
Given the price structure,the demand and supply of electricity is basically in balance.According to the annual report of the2007State Electricity Regulatory Commission,the maximum shortfall of capacity during peak load in2007was only 10GW,a mere1.4%of total installed capacity.
36 C.-E.Bai,Y.Qian/Journal of Comparative Economics38(2010)34–51
Table1
Installed capacity and electricity generated(1952–2007).
Year Installed capacity(unit=10MW)Electricity generated(unit=100million kW h)
Total Hydro Thermal Nuclear Others Total Hydro Thermal Nuclear Others
195219719178731360
195746410236219348145
19621304238106645890368
196515083021206676104572
1970237762417531159205954
197543411343299819584761482
197647151466324920314561575
197751451576356922344761758
197857121728398425654462119
197963021911439128195012318
198065872032455530065822424
198169132193472030936562437
198272362296494032777442533
年轻的妈妈下载198376442416522835158642651
芍药花的花语
198480122560545237708682902
198587052641606441079243183
198693822754662844969453551
198710,29030197271497310023971
198811,55032708280545110924359
198912,66434589206584711854662
非洲战争电影
199013,789360510,184621312634950
199115,147378811,359677512485527
199216,653406812,585754213156227
199318,291445913,832836415076857
199419,990490614,874210927916687470140
199521,722521816,29421010,07018688073128
199623,654555817,88621010,797186987781436 199725,424597319,2282101311,342194692491443 199827,729650720,9882102411,577204393881415 199929,877729722,3432102612,331212910,0471486 200031,932793523,7542103313,685243111,0791677 200133,849830125,3012103714,839261112,0451758 200235,657860726,5554474816,542274613,5222659 200339,141949028,9776195519,052281315,79043911 200444,23810,52432,9486848221,944331018,10450525 200551,66711,73939,138********,655395220,180523
200664,13414,85748,40568518728,310416723,57354327 200771,25614,52655,44288540332,529486726,98062656
黯然无光Sources:the same as Fig.1.
2.2.The history of development
The development of the electricity industry can be divided into three periods,with the market forces playing progres-sively more important roles.
地址解析协议
Thefirst is the pre-reform period before1978.At that time,the degree of government control was even higher in the elec-tricity ctor than in most of the other ctors.The ctor was characterized by two features.One is that there was no p-aration of government functions,such as formulating and enforcing regulations on entry,pricing,and system curity,from business activities,such as electricity generation,transmission,and distribution.Both functions were played by one govern-ment agency,the Ministry of Electricity Industry and local bureaus under the ministry,although the name of the agency changed veral times.The cond is that all activities were under rigid state plan.
Starting from a very low ba,the electricity ctor experienced a period of rapid growth.At the end of
1949,the total installed capacity in the whole country was only1850MW,generating4.3billion kW-h of electricity annually,with annual per capita output of less than8kW-h.By the end of1978,the total installed capacity had incread to 57,120MW,with annual total output of256.6billion kW-h and per capita output of266kW-h.The annual growth rates of total installed capacity and electricity generation were12.6%and15.1%respectively.Despite of the high growth rates, electricity shortage was always a vere problem.Misallocation as a result of rigid planning was partly responsible for the shortage.
The cond period is between1978and2002.In this period,state plan was looned and government functions and business activities began to be parated in this ctor.However,competition was limited and the bureaus of electricity industry and later the electric power corporations played an overwhelmingly dominant role in the ctor.There were three milestones in the reform process.Thefirst was a1985electricity policy document approved by the state council (SCC,1985).This document allowed investment in electricity generation from outside of the state budget,including
C.-E.Bai,Y.Qian/Journal of Comparative Economics38(2010)34–5137 foreign investment.At the same time,it also allowed the electricity generated by plants built with non-state-budgetary funds to enter the market.As a result,two tracks with different prices emerged in the electricity ctor,one withi
n the state plan and the other outside.The cond milestone was the1987state council policy of parating government func-tions from business activities in the electricity ctor.In each province,an electric power corporation was t up parallel to the government bureau of electricity industry.The1985policy of encouraging diver sources of investment in the electricity ctor was reaffirmed.Becau the provincial enterpris were rather independent of one another,the market was gmented.The third milestone was establishment of the National Electric Power Corporation in1997and the sub-quent abolishment of the Ministry of Electricity Industry in1998.After the abolishment of the Ministry of Electricity Industry,the government functions in this ctor became part of the portfolio of the ministerial level State Economic and Trade Commission.
The growth rates of the ctor varied during this long period.In the period of1979–1984,the annual growth rates of total installed capacity and electricity generation were4.9%and6.0%respectively.In the period of1984–1997,however,the cor-responding rates were9.2and8.8respectively.In1997,the ctor experienced surplus of supply,and the government then decided not to approve any new investment in electricity generation for the next3years.This turned out to be short sighted. By2003,22provinces experienced vere shortage of electricity supply and electricity had to be rationed again.
The third period started from2002.The state council issued the System Reform Plan for the Electricity Sector in February, 2002(SCC,2002),which shapes the current practices.
2.3.Current practices
2.3.1.Disaggregation
The2002plan consists of three main components.Thefirst is to parate electricity generation from its transmission and distribution as well as other business.The National Electric Power Corporation was broken up into two transmission and distribution companies parated along regional lines,five electricity generation companies,and four other companies offer-ing engineering and construction rvices for the electricity ctor.
With the implementation of the plan,the number of players has incread significant,but the state still maintains a dom-inant position in the market.At the end of2007,there are more than4000plants with installed capacity above6MW in the electricity generation ctor.Central government controlled enterpris,including thefive companies that spun off from Na-tional Electric Power Corporation5years ago,had a53.95%share of the installed capacity,up4.43%age points from the year earlier.Local government controlled enterpris had a share of41%,down4percentage points,and priv
ate and foreign in-vested enterpris had a share of6.05%,down0.16percentage points.
The transmission and distribution ctor is mainly divided between State Grid Corporation of China and China Southern Power Grid,the two companies that spun off from the National Electric Power Corporation in2002(SERC,2008).Each power grid company is a monopoly transmitter,distributor,and retailer of electricity in its region.Generators ll power to the power grid company,and their access to the grid is mostly at the mercy of the latter,even though in some cas access is suppod to be determined by a bidding process.
2.3.2.Pricing policy
The cond component of the plan is to develop a new mechanism for price formation.The idea is to let the market play a more important role in price formation in the ctor in the long run.
The price that consumers pay consists of four parts(NDRC,2005a,2005b,2005c).One is the cost for the distributor to acquire electricity from the generating plant,the cond is the loss in transmission and distribution,the third is the price for transmission and distribution,and the fourth is government surcharge.The price for transmission and distribution is determined by the government bad on the cost of transmission and distribution.The cost for the distributor to acquire electricity includes the pric
e paid to the generating plant and taxes paid to the government.The price paid to the generating plants is a two-part tariff.One part is the capacity price determined by the government that is independent of the actual amount of electricity that is purchad,and the cond part is a unit price that is either determined by a bidding process or by the government bad on industry average cost,depending on whether the region has t up a functioning electricity trading system.
Different consumers pay different prices.Houholds pay the lowest price,followed by agricultural urs.Non-agricul-tural business urs pay the highest price.
2.3.3.Regulation authorities
The third component of the plan is to reform government functions in the ctor.The State Electricity Regulatory Com-mission(SERC)was formed to regulate the industry but the power to determine the prices in the ctor rests with the Na-tional Development and Reform Commission(NDRC).SERC’s main charges are to maintain competition,protect the interests of various stakeholders,enforce price regulation t out by NDRC,and guarantee the curity of the electricity system(SERC, 2008).National Development and Reform Commission and its local bureaus are responsible for determining the prices when they are not determined by the market.
38 C.-E.Bai,Y.Qian/Journal of Comparative Economics38(2010)34–51
Table2
Investment infixed asts in urban area by jurisdiction of management and registration status:production and supply of electric power and heat power(unit: billion yuan).
一件有趣的事
Year Total By jurisdiction By registration status By registration status
Central Local Domestic HK,Macao,Taiwan Foreign State Collective Private
2004485.4169.9315.5446.323.815.4392.4 6.38.7 2005650.3219.4430.9601.631.317.4507.7612 2006727.4266.2461.2682.227.417.8571.742.480.3
Sources:China Statistical Yearbook2005–2007(NBS,various years).
2.4.Investment incentives
2.4.1.Sources of investment
Substantial amount of resources are invested in the electricity ctor each year.In2007,304.2billion y
uan was invested in electricity generation and245.1billion yuan in transmission.Investment in the ctor is dominated by state-controlled enterpris.This can be en from the distribution of installed capacity among various types of enterpris that we discusd earlier.Table2also illustrates this point,among others.The National Bureau of Statistics does not provide investment data for the electricity ctor alone,but it provides investment data for electricity together with heat power,which should be indicative of the electricity ctor.From the table,we can e that most of the investment was made by state-controlled enterpris;most of the funds came from domestic sources;local governments invested more than the central government.
As Table3shows,of the total invested amount,domestic loan is the most important component.Self-raid funds follow cloly behind.Self-raid funds include extra-budgetary funds from central government ministries and local governments, as well as the lf-raid funds of enterpris and institutions.State budget is not an important component of the total investment in the electricity ctor.Note that Tables2and3show different amount of total investment.This is becau the two ts of statistics come from different sources and the differences between them are statistical discrepancies.
2.4.2.Incentives and problems
A natural question to ask is:why are there incentives for investment in the electricity ctor given the dominant role played by state-controlled enterpris.
In the pre-reform era,state plan was very rigid and large amount of resources could be mobilized to develop a few priority areas of the economy,possibly at the expen of other parts of the economy.Electricity was among the few priority areas. The electricity ctor grew very rapidly then,more so than the whole economy did.
After economic reform started,state plan became less rigid and priority was rebalanced.Without given sufficient eco-nomic incentives,the electricity ctor would not grow as fast as they once did.This could explain why growth slowed down in thefirst few years of economic reform.
Since1985,economic incentives have been gradually introduced.First,investment from outside of the state budget was encouraged and the producers were given more autonomy over electricity generation from the new investment.Then,gov-ernment functions and business activities were parated in the ctor,first at the provincial level in1987and later at the national level in1997.With this paration,electricity is no longer considered a government rvice,albeit with a fee,but a commodity produced and provided by enterpris.This could be one explanation behind a sharp diffe
rence between China and India in the electricity ctor that electricity stealing is not a significant problem in China and loss in transmission only accounts for about7%of total output and are mostly due to technical factors.Enterpris that supply electricity in China are subject to less political pressure than they ud to be and have strong incentives to enforce payment by consumers.
At the same time,the price formation mechanism has gradually become more market oriented,with the prices mostly reflecting industry average costs and normal rates of return.There are times when the price of electricity is not be allowed to adjust accordingly even though the price of coal ud to generate electricity has incread substantially,but this mostly happens during most difficult economic times.
Incread competition is another factor that drives investment.With the2002break up of the National Electric Power Corporation,and the establishment of other electricity generating enterpris,competition among them intensified even though they are mostly controlled by the state.Among the bigfirms,the competition is mainly about who will become
Table3
Source of funds of investment in urban area by ctor:production and supply of electric power and h
eat power(unit=billion yuan).
传统元素
Year Total By sources of funds
State budget Domestic loans Foreign investment Self-raid funds Others
2004499.819.2222.218206.733.6 2005643.725.6296.713.6269.738.1 200672931.4338.78.1304.646.3
Sources:China Statistical Yearbook2005–2007(NBS,various years).
