Funding Urban Infrastructure Development, China Style

Principal Investigator:

Zhirong Zhao, Associate Professor, Humphrey School of Public Affairs

Project Summary:

Throughout the process of decentralization, China's local governments have increased their ability to fund urban infrastructure both by widening revenue resources and diversifying financing approaches. These trends and patterns have raised the question: Are these approaches theoretically reasonable, or can future mechanisms predict more efficient ones?

This study addresses that question and explores the national trends and regional patterns of urban infrastructure funding and financing in China.

The findings show that, when compared to China's strong economic growth and rising population, provisions for urban infrastructure are seemingly insufficient. Several major infrastructure projects, such as paved local roads and streets, have grown at a much slower pace since the economic reform of 1978.

That same economic reform resulted in a transition in China's infrastructure investment from conventional budgetary funding to a much more diversified system. The researchers' analyses show that the government and market are now playing equally significant roles in supporting urban infrastructure development.

The study found that overall, market financing is growing faster than fiscal revenue, and regional studies showed alarming disparities: the municipalities and the east gained a much larger share in the total resources due to their political importance and economic advantages. The west, which used to be the area that developed the slowest, benefited from the central government's policy of prioritizing the development of the west in the recent decade; however, the central region, although it has a higher per capita income than the west, has developed the slowest due to lack of policy and financial support.

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