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Infrastructure in China

The recent experience of the People’s Republic of China (PRC) suggests an intertwined relationship between infrastructure investment, urbanization, and economic growth. This chapter analyses infrastructure-related institutions and the interrelation between infrastructure and urbanization. It addresses the following issues: What is the relationship between infrastructure, growth, and urbanization? How efficient have investment and financing been for infrastructure construction? How can we evaluate the performance of infrastructure development? How and to what extent should the government be involved in infrastructure construction? Although the current infrastructure investment system is still distorted by local governments’ incentives and decisions, there is no evidence of overinvestment in infrastructure at the aggregate level. Nevertheless, there is strong evidence that the marginal return to infrastructure investment in the PRC has been rapidly declining. Hence, it is urgent for policymakers to reform the existing system to base their investment decisions on the economic returns to infrastructure.