What’s driving Chinese infrastructure investment overseas and how can we make the most of it?


Shahar Hameiri, The University of Queensland

Chinese infrastructure investment in Australia has rarely left the headlines lately. It’s reported that telecommunications giant Huawei will likely be banned from building Australia’s 5G network on national security grounds. Hong Kong-based company CK Infrastructure’s bid to buy APA Group’s gas pipeline network is also proving controversial.

Scrutiny of the national security implications of infrastructure has been upgraded. The new Critical Infrastructure Centre is assisting the Foreign Investment Review Board in this. Though not made explicit, the main focus is China.




Read more:
Explainer: why Chinese telecoms participating in Australia’s 5G network could be a problem


Greater scrutiny of investment projects is welcome, especially if community and environmental concerns are also considered. However, Australia could benefit from the availability of Chinese infrastructure financing.

Australia’s north has significant infrastructure needs. And in the major Australian cities, public transport systems are inadequate, leading to ever-longer commuting times. China also possesses world-class expertise in high-speed rail, which could be harnessed to better connect cities on the eastern seaboard.

Given the state of relations with China and Australia’s pressing infrastructure needs, the Australian government must develop a clear strategy for Chinese infrastructure investment. Instead of passively scrutinising bids, the government should proactively identify worthwhile projects and engage Chinese counterparts to finance and implement them.




Read more:
Australia risks missing out on China’s One Belt One Road


Belt and Road isn’t just a political ploy

A proactive approach could benefit Australia because Chinese infrastructure investment is not as strategically directed as many assume. This is clear if we examine the Belt and Road Initiative (BRI) – the centrepiece of China’s global infrastructure financing spree.

The Australian government, on security officials’ advice, has not joined the BRI. However, Belt and Road is not a carefully planned “grand strategy”. It is largely driven by the diverse activities of state-owned enterprises competing for projects and financing.

President Xi Jinping has undoubtedly used the BRI to signal China’s rise to “great power” status. But its main drivers are domestic and commercial. At its core, the BRI is an effort to alleviate China’s industrial overcapacity problem in key sectors, such as steel, glass, cement and aluminium.

Overcapacity has worsened since the global financial crisis, as Beijing sought to maintain growth by encouraging an infrastructure construction boom. State-owned enterprises (SOEs) spearheaded this. After profitable domestic opportunities had dried up, international expansion became attractive, to keep SOEs working and to find more productive outlets for China’s huge foreign currency reserves.




Read more:
As its economy changes, China is starting to export its real estate ideas too


The BRI’s implementation has reflected competition, lobbying and compromises among ministries, provinces and SOEs. Its masterplan document – “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road” – is a case in point. It contains 50 “priority areas”. These cover virtually every governmental and non-governmental activity, showing little actual prioritisation.

Early statements suggested a BRI focus on Central and Southeast Asia. But since 2015 the initiative has been formally opened to all countries. This was again due to intense lobbying from provinces, SOEs and some foreign governments. All are keen to get some of the action, suggesting little strategic direction.

The vague and loose Belt and Road plan has enabled considerable scope for interests within the Chinese party-state to use it for their own, economically motivated, agendas, with little consideration for Beijing’s wider diplomatic objectives. This has generated a rather chaotic, “bottom-up” process for selecting and funding projects.

Belt and Road project ideas usually emerge from state-owned enterprises’ in-country subsidiaries. After spotting an opportunity, they try to build support in the recipient government. Occasionally, this includes bribing officials. They also often seek to obtain the local Chinese embassy’s support to improve lobbying back home.

Once agreement with the recipient government is reached, the SOE or the recipient government applies for financing from China’s policy or commercial banks. The banks determine whether to extend credit after assessing repayment capacity. The central government’s involvement is typically limited to the National Development and Reform Commission’s formal approval.




Read more:
The Belt and Road Initiative: China’s vision for globalisation, Beijing-style


Australia still needs to manage the risks

Chinese infrastructure projects are not risk-free. The potential for misuse of key infrastructure to serve Chinese strategic agendas is clearly the Australian government’s foremost concern. But there are more immediate issues too.

Chinese banks’ lending standards are well below world “best practice”. They give limited consideration to social, environmental and labour protections when awarding financing to projects.




Read more:
China’s green planning for the world starts with infrastructure


Tough competition between Chinese companies means they have strong incentives to cut corners and promote projects that recipients do not need. The latter can be saddled with unnecessary infrastructure and potentially unsustainable debt. Furthermore, Chinese central agencies’ capacity to regulate SOEs’ offshore activities is weak, so they cannot be relied upon to manage these problems.

Closer scrutiny of investment proposals is, therefore, clearly necessary. So, too, is tight regulation of project implementation. Australian regulators should also ensure Chinese projects adequately resolve social, environmental and labour concerns.

The fragmented nature of Chinese investments provides opportunities, however, for selective engagement that could serve the wider public interest. This should form part of a clear Australian strategy towards China based on a nuanced analysis of both the threats and opportunities of this multifaceted relationship.


The Conversation


Read more:
Canada’s disturbing lack of vision on dealing with a rising China


Shahar Hameiri, Associate Professor of International Politics, The University of Queensland

This article was originally published on The Conversation. Read the original article.

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What was missing in Australia’s $1.9 billion infrastructure announcement


Virginia Barbour, Queensland University of Technology

When we think about infrastructure it’s most often about bridges or roads – or, as in this week’s federal government AU$1.9 billion National Research Infrastructure announcement, big science projects. These are large assets that can be seen and applied in a tangible way.

It’s not hard to get excited over money that will support imaging of the Earth, or the Atlas of Living Australia.

But important as these projects are, there’s a whole set of infrastructure that rarely gets mentioned or noticed: “soft” infrastructure. These are the services, policies or practices that keep academic research working and, now, open.

Soft infrastructure was not featured in this week’s announcement linked to budget 2018.




Read more:
Budget 2018: when scientists make their case effectively, politicians listen


Ignored infrastructure

An absence of attention paid to soft infrastructure isn’t just the case in Australia, it’s true globally. This is despite the fact that such infrastructure is core to running the hard infrastructure projects.

For example, the Open SSL software library – which is key to the security of most websites – has just a handful of paid individuals who work on it. It’s supported by fragile finances. That’s a pretty frightening thought. (There’s another issue in that researchers doing this work get no academic credit for their efforts, but that’s a topic for another time.)

There are other high profile, globally used, open science infrastructures that also exist hand to mouth. The Directory of Open Access journals which began at Lund University relies entirely on voluntary donations from supporting members and on occasional sponsorship.

Similarly, Sherpa Romeo – the open database of publishers’ policies on copyright and self-archiving – came out of projects at Nottingham and Loughborough Universities in the UK.

In some ways these projects’ high visibility is part of their problem. It’s assumed that they are already funded, so no-one takes responsibility for funding them themselves – the dilemma of collective action.




Read more:
Not just available, but also useful: we must keep pushing to improve open access to research


Supporting open science

Other even more nebulous types of soft infrastructure include the development and oversight of standards that support open science. One example of this is the need to ensure that the metadata (the essential descriptors that tell you for example where a sample that’s collected for research came from and when, or how it relates to a wider research project or publication) are consistent. Without consistency of metadata, searching for research, making it openly available or linking it together is much less efficient, if not impossible.

Of course there are practices in place at individual institutions as well as national organisations. The soon-to-be-combined organisations -Australian National Data Service, the National eResearch Collaboration Tools and Resources project and Research Data Services (ANDS-Nectar-RDS) – are supported by national infrastructure funding. These provide support for data-heavy research (including for example the adoption of FAIR – Findable, Accessible, Interoperable and Reusable standards for data).

But without coherent national funding and coordination, specifically for open science initiatives, we won’t get full value from the physical infrastructure just funded.




Read more:
How the insights of the Large Hadron Collider are being made open to everyone


What we need

What’s needed now? First, a specific recognition of the need for cash to support this open, soft infrastructure. There are a couple of models for this.

In an article last year it was suggested that libraries (but this could equally be funders – public or philanthropic) should be committing around 2.5% of their budget to support open initiatives. There are some international initiatives that are developing specific funding models – SCOSS for Open Science Services and NumFocus for software.

But funding on its own is not enough: we need a coordinated national approach to open scholarship – making research available for all to access through structures and tools that are themselves open and not proprietary.

Though there are groups that are actively pushing forward initiatives on open scholarship in Australia – such as the Australasian Open Access Strategy Group, the Council of Australian University Librarians, and the Learned Academies as well as the ARC and NHMRC who have open access policies – there is no one organisation with the responsibility to drive change across the sector. The end result is inadequate key infrastructure – for example, for interoperability between research output repositories.

We also need coherent policy. The government recognised a need for national and states policies on open access in its response to the 2016 Productivity Commission Inquiry on Intellectual Property, but as yet no policy has appeared.




Read more:
Universities spend millions on accessing results of publicly funded research


It’s reasonable to ask whether in the absence of a national body that’s responsible for developing and implementing an overall approach, what the success of a policy on its own would be. Again, there are international models that could be used.

Sweden has a Government Directive on Open Access, and a National Body for Coordinating Open Access chaired by the Vice-chancellor of Stockholm University.

The Netherlands has a National Plan for Open Science with wide engagement, supported by the Ministry of Education, Culture and Science. In that country, the Secretary of State, Sander Dekker, has been a key champion.

The EU has had a long commitment to open science, underscored recently by the appointment of a high-level envoy with specific responsibility for open science, Robert-Jan Smits.

Private interests might take over

Here’s the bottom line: national coordinated support for the soft infrastructure that supports open science (and thus the big tangible infrastructure projects announced) is not just a “nice to have”.

One way or another, this soft infrastructure will get built and adopted. If it’s not done in the national interest, for-profit companies will step into the vacuum.

We risk replicating the same issues we have now in academic publishing – which is in the hands of multi-billion dollar companies that report to their shareholders, not the public. It’s clear how well that is turning out – publishers and universities globally are in stand offs over the cost of publishing services, which continue to rise inexorably, year on year.


The Conversation


Read more:
Publisher pushback puts open access in peril


Virginia Barbour, Director, Australasian Open Access Strategy Group, Queensland University of Technology

This article was originally published on The Conversation. Read the original article.

Budget policy check: do we need ribbon-cutting infrastructure for jobs and growth?


Hugh Batrouney, Grattan Institute

In this series – Budget policy checks – we look at the government’s justifications for policies likely to be in this year’s budget and measure them up against the evidence.

In this piece we look at the need for infrastructure projects.


We look set for another infrastructure budget: big new projects that will, we’re told, boost growth, create jobs and tackle the pressures of our booming population. For example, the Turnbull government has already pledged up to A$5 billion for a rail link from Melbourne Airport to its CBD.

Infrastructure can play an important role, but behind the rhetoric some fundamental investment principles are missing.

Are investing in infrastructure and economic growth a sort of virtuous circle that feed each other?

Through a stronger economy, you can also invest in important infrastructure that again drives stronger growth in our economy … but also delivers the infrastructure that busts the congestion in cities, that makes rural and regional roads safer.

– Treasurer Scott Morrison

Yes, sometimes infrastructure spending and economic growth form a virtuous circle. In new suburbs and rapidly growing cities, infrastructure is needed to connect people to jobs and that in turn drives economic activity.

But we shouldn’t be fooled into thinking any spending is good spending. There are many examples where the opposite is more likely true: where poorly targeted infrastructure wastes resources and weakens economic growth.

If we want to identify the best projects, a good place to start is our biggest cities. Big cities have a productivity advantage because they match workers to jobs better and faster than smaller cities and towns. Transport infrastructure is key to this matchmaking.

But in many cases, the enormous costs of construction in big cities – acquiring land, disrupting traffic, and the physical challenge of constructing in densely developed places – often makes it hard to justify the incremental increases in accessibility that a project generates.

Instead, policies and projects targeting better use of existing infrastructure can have greater economic impacts. The trouble is, these projects usually don’t involve cutting a ribbon.

Changes to the way we set prices for the use of roads and public transport, for example, can help us get more out of the infrastructure we already have. Charging public transport users different amounts depending on the time of day they travel can reduce peak-period overcrowding on our trains. With much lower capital costs, policies like this often deliver a bigger bang for the buck than major new investments.

Are these road and rail projects the sort of infrastructure that supports growth?

Whether it’s the Tulla Rail or the M1 up in Queensland or indeed in my home city of Sydney around Western Sydney Rail from the airport and the road infrastructure that goes around that in particular, we are making important national investments in infrastructure that will support growth, bust congestion in our cities and make our transport – rural and regional roads – safer.

– Treasurer Scott Morrison

Infrastructure undeniably plays a role in supporting the economy. But not every project will add to the productivity of our economy.

On the face of it, the economics of airport rail in Melbourne look thin. Infrastructure Victoria has said upgrading airport bus services should be investigated first, because at A$50-100 million it’s a much cheaper way to tackle the same problem. It has also said that the rail line should be delivered within 15-30 years.

The perceived urgent need for airport rail in Melbourne may stem from the slow and unreliable travel to the airport over the past 18 months. This is a byproduct of the Tullamarine Freeway widening project, which is now almost complete. Responding to a short-term pressure with a multi-billion dollar investment – in the absence of a detailed business case – is a depressing example of poor policy-making.

And the Treasurer’s enthusiasm for the Western Sydney airport rail is also concerning, given that a recent state government study indicated the project wouldn’t be needed to cater for customers and workers at the airport until 2036, at the earliest. Infrastructure Australia has been clear that a rail corridor, running north-south through the airport site, needs to be preserved for a future rail line. But that is a long way from justifying billions of dollars of infrastructure that isn’t needed for nearly another 20 years.

Does Australia need infrastructure to create jobs?

Our national economic plan for jobs and growth has been getting results…A $75 billion national infrastructure investment plan that is building the runways, railways and roads Australia needs to remain competitive, and create jobs.

– Treasurer Scott Morrison

At certain points in the economic cycle, infrastructure spending can help create jobs. New projects create jobs for workers involved in planning, building and deploying each project, as well as for the suppliers of equipment and materials needed as inputs.

And in the longer term, the Treasurer is right to say that infrastructure is essential if our cities are to remain competitive.

But again, context is everything.

Infrastructure can put people to work when there is “slack” in the labour market – when there is unemployment or underemployment, in other words. But if there is little slack in the labour market, then the workers required to get a project off the ground will be drawn from other productive activities. In that case, there may be no boost to jobs or economic growth, because one activity is merely displacing another.

With national unemployment currently around 5.5%, there does appear to be some slack in the labour market right now. However, firms are now finding it more difficult to access the labour they want. And the slack doesn’t appear to be in the parts of the economy that would benefit most from new projects: as the RBA reports, the construction sector recently reached its highest share of total employment since the early 1900s.

What’s the verdict?

Eminent urban economist Ed Glaeser once said, “if you have a focus on jobs and macroeconomic effects, it leads to infrastructure in the wrong place”. Australia should focus on a project-by-project approach; that’s the only way we can be assured that investments represent the best possible use of available funds.

This means starting with some basics: the government should not commit to expensive new infrastructure projects until it has commissioned a detailed look at the economic impacts of the investments, and it has made public the results of that analysis.

The ConversationThat’s how infrastructure policy would be done in an ideal world. But sadly, in a pre-election budget, we can probably expect politics to triumph over policy, yet again.

Hugh Batrouney, Fellow, Grattan Institute

This article was originally published on The Conversation. Read the original article.

A closer look at business cases raises questions about ‘priority’ national infrastructure projects


Glen Searle, University of Sydney and Crystal Legacy, University of Melbourne

Infrastructure Australia’s latest infrastructure priority list has been criticised for being “too Sydney-centric” and for giving Melbourne’s East West Link, cancelled in 2014, “high priority” status. The cancelled Roe 8 project in Perth was removed from the list.

So how does a project get onto Infrastructure Australia’s list? This requires submission of a full business case, which then needs to be “positively assessed” to be given priority status.

But our research, yet to be published, has found these business cases leave out highly significant costs. This article looks at three prominent projects – the WestConnex and East West Link motorways in Sydney and Melbourne respectively, and Cross River Rail in Brisbane – to illustrate how business cases submitted to Infrastructure Australia do not follow its requirements in key respects. This casts serious doubt on the business cases used to justify major motorway projects, as well as on how priority projects are selected.


Read more: FOI reform needed in Victoria amid East West Link fallout

Read more: Roe 8 fails the tests of responsible 21st-century infrastructure planning


What do business cases assess?

Ensuring business cases are completed before investment decisions are finalised is critical to “good planning”. Part of Infrastructure Australia’s remit is to head off concerns that projects are committed to before business cases are fully evaluated. This can help minimise “optimism bias” and ensure investments deliver community benefit.




Read more:
WestConnex audit offers another $17b lesson in how not to fund infrastructure


But we must also examine what the business case is actually showing us. The main part of each business case is the cost-benefit analysis. This compares the money value of project benefits and project costs. Economically viable projects should have a benefit-to-cost ratio above 1:1.

Infrastructure Australia requires project business cases to consider non-monetised benefits and costs, including community impacts. These benefits and costs are required to be quantified in some other way, or at least described. The basis used to estimate “external costs” must also be provided.

The cost-benefit methodology requires any significant positive or negative impacts on third parties – externalities – to be included. Examples include air quality, carbon emissions, noise, biodiversity and climate adaptation.

Social impacts to be covered include equity or the distribution of benefits (which Infrastructure Australia says need to be identified since cost-benefit analysis does not explicitly take these into account), and affected local communities and other individuals/groups. The non-monetised benefit and cost categories listed as relevant are: social impacts, cultural impacts, visual amenity/landscape, biodiversity and heritage impacts.

In support of monetary estimates, proponents must “describe and provide supporting material that demonstrates how land use, population and employment projections are modelled”.

The guidelines stress that the supporting conditions for expected land use impacts will be in place – for instance, necessary infrastructure investment where densification is assumed. Factors that can hinder the realisation of such benefits (such as local opposition to increasing density) must also be included.

This process would seem to produce a rational prioritisation of national infrastructure projects. The problem is that the business cases submitted to Infrastructure Australia do not follow its requirements.

High-priority projects with problematic business cases

To illustrate this, we analysed the business cases of three projects designated as “high priority” for Commonwealth funding:

  • East West Link, to which the Commonwealth allocated A$1.5 billion before the new Victorian government cancelled the project

  • WestConnex, which has been allocated A$3.5 billion

  • Cross River Rail, which is yet to receive funding.

A key problem in these business cases is that significant project cost items have not been monetised. These include costs relating to environmental effects such as noise and visual amenity and to other impacts on businesses, households and property values.

For example, none of the three cases includes a valuation of the costs of lost business and disruption to household travel and amenity during construction. (This is a big issue with Sydney’s southeast light rail project.)

There is also no costing of the loss of property values along motorways, especially around exhaust emission vents. The East West Link and Cross River Rail business cases make some allowance for this by including the value of general changes in amenity from noise, urban landscape and visual amenity. None of these are costed in the WestConnex case.

Another significant omission relates to the costing of land use impacts. The WestConnex and East West Link business cases both forecast more, and longer, road trips across the network as a result of the projects.

The WestConnex scheme will increase vehicle kilometres by 600,000 per day and make outer suburbs more accessible relative to the inner city. The potential extra costs from greater sprawl are high, estimated at A$4.99 billion for Sydney over 25 years from 2011 if greenfield housing was 50% of new dwellings rather than 30%.

The opposite is the case for Cross River Rail. Increased higher-density development around rail stations would produce infrastructure savings, but the business case does not give these a value.

Furthermore, the valuation of changes in transport mode resulting from each project is inconsistent.

The Cross River Rail business case includes savings resulting from motorists switching from road to rail after the line is built.

The WestConnex project will have the reverse effect, with 45,000 public transport trips per day being switched to the motorway. But the business case does not put a value on the costs of this. These include bus and train revenue losses, or reduced service frequency and increased waiting time to reduce losses.

Debatable ‘wider economic benefits’

The most contentious business case component is wider economic benefits. These are productivity improvements arising from increased central city job density as a result of the projects improving access.

These benefits needed to be included to lift the East West Link benefit-cost ratio above one. But this is only achieved through sleight of hand – public transport improvements into central Melbourne are included as part of the full project cost. As the public transport component of the business case had low costs compared to its benefits, including these wider economic benefits was enough to push the overall ratio above 1.

Similar benefits are part of the WestConnex cost-benefit analysis. However, these benefits are to be achieved from extra car trips to the centre. This takes no account of the disincentives of road congestion and lack of parking.

Current central Sydney planning controls allow a maximum of one new parking space per 75 square metres of floor area for not-so-tall offices – or one space for about five new workers – and even fewer spaces relative to floor area for higher buildings. This means most increased job density will not come from people driving to work.

By contrast, the wider economic benefits of the Cross River Rail resulting from increased job density in central Brisbane are not valued for inclusion in the cost-benefit analysis.




Read more:
Brisbane’s Cross River Rail will feed the centre at the expense of people in the suburbs


Rethinking the business case

Our work points to several real concerns:

  • a lack of consistency in what is included in business cases
  • questions about how cases can be reasonably compared across projects
  • discretionary inclusion or exclusion of critical items that bias results in favour of projects.

The ConversationWe need more holistic and integrated analysis of projects. This will take into account not only the “nation-building” aspects – the jobs and growth projects might inspire – but also the disrupting and displacing effects they produce across transport modes, land uses and people’s experiences of the city.

Glen Searle, Honorary Associate Professor in Planning, University of Queensland and, University of Sydney and Crystal Legacy, Senior Lecturer in Urban Planning, University of Melbourne

This article was originally published on The Conversation. Read the original article.

Building for the community is a win for the Gold Coast Games


Karine Dupré, Griffith University

Major events such as the Olympic and Commonwealth Games have emerged in recent years as significant elements of public policy. In addition to the opportunities new venues provide, these events are viewed as a way to stimulate tourism and investment, increase civic engagement and promote urban revitalisation more generally.

For the next two weeks, the Gold Coast is hosting the Commonwealth Games, a record fifth time for Australia. But it’s the first time an Australian non-capital city will host the event.

Another great distinction from past hosts is that the Gold Coast is mostly relying on its existing assets, and the community aspect has generally prevailed: most of the refurbishments and extensions took place one to three years before the start of the Games, meaning the community has already been able to use these facilities.

Not building just for the Games

Only two of the 13 Gold Coast venues are bright new buildings, the Carrara Sports and Leisure Centre and the Coomera Indoor Sports Centre. All the others are either already built or are great natural assets such as the Coolangatta and Currumbin beachfronts.

Even the new venues were completed some time ago. At the Coomera Sports Centre, early site works began in February 2015. Construction was completed in early August 2016, 20 months ahead of the Games.

Similarly, the Carrara Sports Centre was completed in early 2017. The nearly 20,000m2 venue was available to Gold Coast residents to enjoy more than a year before the Games.

Refurbishment is costly, but looking at the bigger picture it might still be less expensive. A new building usually involves other costs such as building new road access, water and electrical connections, and so on.

The same strategy was implemented for all the refurbishment projects without exception. For example, the aquatic centre is a recycling and expansion of the original 1960s Southport pool. Finished in 2014, it hosted the Pan Pacific Swimming Championships the same year. Although at that time debate about the lack of a roof was raging, being able to test the facility in advance is a luxury that few host cities have had.

Few Games hosts have had the luxury of trialling venues like the aquatic centre, where refurbishment was finished in 2014.
Karine Dupre, Author provided

What about the architectural legacy?

In designing venues, architecture plays a a critical role in delivering a premium experience for athletes and spectators, and thus ensuring the success of the Games.

It’s doubtful any of these buildings will enter into the history of architecture as references or models for future Games. They are not comparable to what has been done, for example, in Beijing in terms of structural innovation (such as the swimming pool or the stadium) or iconic status.

I am convinced, however, that all these buildings display a very good critical approach by their architects.

For example, for the Coomera centre, the choices made by Gold Coast-based BDA architects were fundamental to achieve the flexibility to accommodate up to 7,500 spectators when starting from 350 permanent seats. The truss structure, in allowing a very long span (82m by 168m for the roof), frees the indoor space from columns and increases flexibility of uses. In the same way, the 23m roof clearance frees the volume.

In terms of aesthetic, the choice not to enclose fully the centre at the entrance gives both a lighter perception of the building – despite the use of 600 tonnes of structural steel and 6,000 cubic metres of concrete – and a different look from the traditional box often found for gymnasiums.

Commonwealth Games gymnastics competition is under way at the Coomera Indoor Sports Centre.
Karine Dupre, Author provided

The key new facility at Carrara presents some similar characteristics. Because of its central location on the Gold Coast, the idea was that the new centre would contribute to the creation of a sport precinct and to economic development and sport advocacy programs. Knowing that Glasgow had a 17% increase in people doing sport after the Games, it was a reasonable vision to bet on long-term use by locals and not only on the visitors for the brief period of the Games.

Designed by BVN architects, the Carrara centre consists of a street space between two major halls. As the nominated venue for the badminton, wrestling and table tennis programs, it is quite an unexpected arrangement; it does not feel like the traditional sport hall, but more like a place to meet others. The colours and material palette have been used to symbolise the young and vibrant image of the Gold Coast. Again, all these architectural choices come together to provide a memorable experience for visitors and athletes alike.

Within the given budget, the balance between an appealing aesthetic and a long-term legacy has been achieved. Maybe none of these buildings will become international landmarks, but present uses have shown their functionality and benefits for the Gold Coast.

Even if we don’t all agree with the current politics, there is one thing we cannot deny about the Games preparation: architecture has been a tool for enhancing public facilities thanks to a very long-term vision. The social, cultural and economic legacy is already there, since facilities are being used.

The ConversationFinally, since the Games preparations began, major debates on the Gold Coast concerned new casinos, the Spit redevelopment and the light rail extension. None of these debates caused any real problems for the Games. It is quite an achievement, or the result of a very good communication strategy, but that might be another discussion…

Karine Dupré, Associate Professor in Architecture, Griffith University

This article was originally published on The Conversation. Read the original article.

Why Trump’s infrastructure ambitions are likely to stall



File 20180206 88788 1aqw49g.jpg?ixlib=rb 1.1
The White House favors public-private partnerships for widening congested roads and getting other pricey projects done.
AP Photo/Charles Dharapak

Caroline Nowacki, Stanford University and Kate Gasparro, Stanford University

President Donald Trump recently raised the ante with his promise to unleash a wave of new infrastructure spending. During his first State of Union address, he conjured up images of “gleaming new roads, bridges, highways, railways and waterways all across our land” without getting into the details.

The White House will soon unveil
Trump’s “Infrastructure Incentives Initiative,” which Trump now says will usher in at least US$1.5 trillion in spending. That’s a 50 percent jump from the $1 trillion he had previously pledged and nearly triple the money he talked up on the campaign trail.

With only $200 billion in federal funding apparently on the table, and ample questions
from the lawmakers who need to approve that money about where even that sum will come from, will the plan deliver?

A draft of his plan indicates it would rely on states, local governments and, most importantly, private investors to contribute the rest of the $1.5 trillion pie. As researchers studying ways to boost private infrastructure spending, we believe that it will fall short because it does not address private investors’ key concerns, and it would not work for many kinds of high-priority projects.

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Matching and mismatching

During his address, Trump repeated a message he’s made many times before: that private investment should help pay the nation’s infrastructure bill. “Every federal dollar should be leveraged by partnering with state and local governments and, where appropriate, tapping into private-sector investment – to permanently fix the infrastructure deficit,” he said.

That makes it sound like he favors “public-private partnerships,” or P3s, the most common way governments attract and leverage private investment.

Here’s how they work. A public sponsor – either the federal government agency or a state or local government agency – contracts out part or all of the financing, construction, maintenance and operation of a project to a group of private companies following a competitive bidding process.

The amount of infrastructure money in new U.S. P3s has waned in recent years. It fell to $710 million between 2011 and 2014 from higher levels seen a few years earlier, the most recent period for which data is available. And P3s only facilitated about 1.5 percent of the $4 trillion all levels of government spent on highways between 1989 and 2013, according to the nonpartisan Congressional Budget Office.

However, the number of pension funds and other institutional investors putting money into infrastructure has doubled.

What’s holding things up?

Investors do not say that a lack of federal subsidies, like the $200 billion Trump reportedly seeks, is a big bottleneck. Instead, to draw much more private investment, the U.S. needs clear, consistent regulations that will help make projects more likely to withstand any shifts in political power – such as when the majority party changes at any level of government.

Establishing a more successful track record for these partnerships, which have often faltered, will also help.

One step the U.S. could take now is to follow the examples set by Australia and Canada, where more infrastructure is being built through these partnerships. Specialized P3 teams in those countries have developed uniform competitive bidding processes, standardized contracts and project pipelines all based on lessons learned from prior partnerships.

Californian precedents

The spotty track record for some U.S. efforts to establish P3s underscores the importance of that kind of coordination.

California, for example, sought in 1989 to harness four of these partnerships as “demonstration” projects. It only completed two of those four.

First, California’s transportation department created a P3 to build express lanes for its busy SR-91 highway to ease Orange County congestion near Los Angeles.

Because the department agreed to not build free roads running parallel to the tolled ones, a public outcry ensued after the 10-mile-long road opened to traffic in 1995.

Orange County then bought out the private-sector partner stake in this project eight years later, cutting its long-term contract short.

Expanding the South Bay Expressway, the other P3 California announced in 1989 that got done, took until 2007 to complete. Three years later, the project’s private partner declared bankruptcy, largely because of years of litigation that delayed the onset of tolls – which then generated less revenue than expected.

These planning errors, which were due to lack of experience, undercut confidence in the partnership approach for investors and the public alike.

But the Trump plan’s leaked preliminary details, such as an “interagency selection committee” administered by the Commerce Department and “federal technical assistance” with “no funding provided,” sound like they will fall short of what’s required.

We believe that unless the Trump administration – despite his disdain for bureaucracy – establishes new government offices to oversee federally backed P3s, it is likely to repeat the errors that hampered California’s pioneering projects.

If they build it

With infrastructure, investors are looking for relatively stable returns and less risk, more akin to bonds than stocks. This makes financing these partnerships attractive for pension funds and other institutional investors.

At the same time, it makes investors more eager to back projects that already exist and are generating revenue through user fees, such as toll roads, airports, ports and some transit projects with nearby land that can be sold or leased.

In the U.S., however, the government mainly needs the private sector’s help meeting other less profitable priorities, such as improving water quality, expanding public transit and building levees.

Although those projects may not be attractive to investors, they can stoke economic growth and productivity while fostering a higher quality of life.

Dwayne Boudreaux Jr., owner of a Circle Food Store in New Orleans, shown dumping dirty water that was vacuumed up after a flood. His city needs more than $11 billion to update key parts of its infrastructure but has only about $2 billion in hand.
AP Photo/Gerald Herbert

India’s mixed results

Interestingly, Trump’s infrastructure plan may resemble India’s approach, which has had mixed results since its 2004 inception. There, the national government foots about 20 percent of the bill when it enters into public-private partnerships, just as the White House proposes to do.

The Indian policy was intended for toll roads and airports for which the government fixed the user fees. The subsidy closed the gap between this regulated revenue stream and investors’ expectations.

However, India has failed to spend most of the money it budgeted for this initiative, suggesting that it will take more than subsidies to entice private investment.

Between India’s track record and signals about insufficient federal guidance and support for public-private partnerships, we doubt that Trump’s plan, as drafted, would catalyze the $1.5 trillion in infrastructure spending he envisions.

The ConversationWhat’s more, we’re concerned that Trump’s proposed plan would primarily aid the kinds of projects that already attract private dollars, leaving many big priorities without a federal assist.

Caroline Nowacki, PhD Candidate, Global Projects Center, Stanford University and Kate Gasparro, Graduate Research Fellow of Sustainable Design and Construction, Stanford University

This article was originally published on The Conversation. Read the original article.

Energy prices are high because consumers are paying for useless, profit-boosting infrastructure


Bruce Mountain, Victoria University

The preliminary report on energy prices released last week by the Australian Competition and Consumer Commission (ACCC) suggests that the consumer watchdog is concerned about almost every aspect of Australia’s electricity industry. It quotes customer groups who say electricity is the biggest issue in their surveys, and cites several case studies of outrageous price increases experienced by various customers.

The report is long on sympathy about the plight of Australia’s electricity users. But the true picture is even worse – in reality, the ACCC’s assessment of Australia’s energy prices compared to the rest of the world is absurdly rosy.


Read more: Power bills can fall – but the main attention must be on affordability: ACCC


Australia has internationally high energy prices

The ACCC quotes studies from the Electricity Supply Association and the Australian Energy Markets Commission (AEMC) to compare electricity prices in Australia with those in other OECD countries. But the ACCC’s comparison is based on two-year-old data, and badly underestimates the actual prices consumers are paying.

The AEMC’s analysis assumes all customers are on their retailer’s cheapest available offer. This is an obviously implausible assumption, and gives a favourable impression of the price that customers are paying.

As previously pointed out on The Conversation, the Thwaites review – which looked at customers’ actual bills – found that in February 2017 Victorians were typically paying A35c per kilowatt hour (kWh) – 42% more than the AEMC’s estimate. What’s more, we know that Victoria’s electricity prices are lower on average than those in South Australia, Queensland and New South Wales, and hence below the Australian average.


Read more: Australian household electricity prices may be 25% higher than official reports


A part of this 42% gap – around 15% – is explained by the latest price increases that are not included in the ACCC’s comparison. But this still leaves a 27% gap between what the AEMC assumes and the evidence of actual prices.

This begs the question: why did the ACCC not recognise the widely known flaw in the AEMC’s analysis?

The real problem is overbuilt network infrastructure

The report estimates that rising network charges account for more of the price increase than all other factors put together. There is no doubt that network charges are a real problem at least in parts of Australia, although their significance relative to retailers’ costs is contested territory.

But why would distributors build far more network infrastructure than they need? And why have government-owned distributors built far more infrastructure than private ones, despite having no more demand?

The answer to this perplexing question is to be found in part in Australia’s “competitive neutrality” policy. This is Orwellian doublespeak for an approach that is neither neutral nor competitive.


Read more: Government Inc: time to revisit competitive neutrality


Under this policy, government-owned distributors are regulated as if they are privately financed. This means that when setting regulated prices, the Australian Energy Regulator (AER) allows government distributors to charge their captive consumers for a return on their regulated assets, at the same level as if they were privately financed. That is despite the fact that private financing is much more expensive than government funding.

It’s no surprise that when offered a rate of return that far exceeds the actual cost of finance, government distributors have a powerful incentive to expand their infrastructure for a profit. This “gold-plating” incentive is a well-known in regulatory economics.

Regulators, the industry and their associations have explained higher spending on networks in a variety of ways: higher reliability standards; flawed rules; flawed forecasting of demand growth; and the need to make up for historic underinvestment.

But was there ever historic underinvestment? A 1995 article co-authored by the current AEMC chair concluded that distribution networks had been significantly overbuilt. That was more than two decades ago, government distributor regulated assets are at least three times bigger per customer now.

The chart below – based on data from the AER’s website – examines how the 12 large distributors that cover New South Wales, Victoria, Queensland and South Australia spent their money on infrastructure between 2006 and 2013. This period covers the last five-year price controls established by the state regulators, and the first control established by the AER. It was during this time that expenditure ballooned. The monetary amounts in this chart are normalised by the number of customers per distributor.

Distributor spending on infrastructure between 2006 and 2013.
Author provided

The first five distributors from left to right (and Aurora) were owned by state governments and the others are privately owned. A clear pattern emerges: the government distributors typically built much more infrastructure than the private distributors. And the government distributors focused their spending on substations, which are much easier to build (or expand or replace) than new distribution lines or cables.

We also know that the distributors’ spending on substations far outstripped the increases in the peak demand on their networks. The figure below compares the change in the government and private distributors’ substation capacity (the blue bars) with demand (the red bars) over the period that most of the expenditure occurred. Again, the amounts have been normalised by number of customers.

Substation capacity versus peak demand between 2006 and 2013.
Author provided

The gap in spending between government and private distributors is stark. It is also obvious that in all cases, but particularly for the government distributors, the expansion of substation capacity greatly exceeded demand growth – which hardly changed over this period (and is even lower now, per connection).

To put it in more tangible terms, as an average across the industry, peak demand between 2006 to 2013 increased by the equivalent of the power used by one old-fashioned incandescent light bulb, per customer. But government distributors expanded their substation capacity by more than one 100 light bulbs, per customer. The private distributors did relatively better, but still increased the capacity of their substations by the equivalent of about 30 light bulbs per customer.

My PhD thesis included econometric analysis that shows government ownership in Australia is associated with regulated asset values that are 56% higher than private distributors, and regulated revenues that are 24% higher, leaving all other factors the same.

To some, this evidence supports a “government bad, private good” conclusion. Indeed it was this line of argument that the Baird government in New South Wales used to justify its partial privatisation of two network service providers.

But in international comparisons of government and private distributors in the United States, Europe and New Zealand, no such stark differences are to be found. The huge disparity between government and private distributors is a peculiarly Australian phenomenon.

How we got here

This Australian exception originates in chronic policy and regulatory failure. As far back as 2011, the Australian Energy Market Commission (AEMC) heard a proposal that government distributors should earn a return closer to their actual cost of financing – a suggestion that would have reduced prices significantly and removed the incentive to gold plate.

In response, the AEMC said the regulations were consistent with the “competitive neutrality” policy. But this is not true: in the policy’s own words, it was designed to stop government businesses from crowding out competitors. Distributors are protected monopolies; they do not have competitors.

The AEMC also argued, somewhat bizarrely, that it was good economics for a regulator to assume that government distributors are privately financed.

This represents the triumph of an idealistic “normative” regulatory model in which regulators act on the basis of how the regulated entity should behave rather than how they actually behave.

But it would wrong to blame the AEMC alone for this failure. All of Australia’s key institutions and governments have agreed that government distributors should be regulated as if they are privately financed. For governments that own their distributors, this has been a wonderfully profitable fiction.

Therein lies much of the explanation for what is effectively, if I may call a spade a spade, a racket.

It is an indictment of Australia’s polity and so many of its economists that the 2011 Garnaut Climate Change Review stands alone, in a library of reviews, as stating this problem clearly. In fact, if you review last week’s report from the ACCC, you will not find a single distinction between the impact of government and private distributors.

And if you thought this was yesterday’s war, you would be wrong. Despite the mass of evidence, our regulators persist in the fiction that ownership and regulation should be independent of one another.

It is difficult not to lapse into despair about Australia’s energy policy morass. Despite the valiant attempts by many, a deeply entrenched culture of half-truths, vested interests, ideology and wishful thinking still characterises all too much of what emanates from the political and administrative leadership of this industry.

Some energy consumers – Prime Minister Malcolm Turnbull among them – will buy their way out of this problem through solar panels and batteries. But the poorest households and many business customers will increasingly be left carrying the can.

The ConversationAustralians are angry about electricity. Not unreasonably.

Bruce Mountain, Director, Carbon and Energy Markets., Victoria University

This article was originally published on The Conversation. Read the original article.

How America can copy Australia’s asset-recycling scheme



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Asset recycling could lead to more US infrastructure spending.
Shutterstock

Caroline Nowacki, Stanford University; Ashby Monk, Stanford University, and Raymond Levitt, Stanford University

US Vice President Mike Pence announced the administration’s desire to emulate the Australian model of infrastructure asset recycling as part of President Trump’s US$1 trillion infrastructure plan. Our research shows that good governance is key to making it work in the United States.

New South Wales (NSW), a state that has had some success in asset recycling, created an independent agency to oversee its program. The agency is staffed by employees with private sector experience. Senior public figures are on the board to ensure independence.

The result has been an asset-recycling program that received high prices for government assets and has prioritised new projects based on cost and impact. Other Australian states have adopted this model, which will be key for the US too.

Recycling directs money to new infrastructure

Under an asset-recycling scheme, governments lease existing infrastructure assets to private companies and invest the proceeds in new infrastructure projects. In 2013, the Australian government started a A$5 billion incentive program giving state governments an additional 15% of the capital recycled from existing assets and reinvested in new infrastructure.

Between 2013 and 2016, NSW leased about A$15 billion of infrastructure assets to private investors, and allocated about A$6 billion to new projects, without raising additional public debt.

Infrastructure asset recycling manages to fund new projects by addressing the mismatch between government infrastructure promises and the goals of private investors.

Governments often lack the capital to invest in infrastructure and are worried about rising public debt. The World Economic Forum estimates the gap between infrastructure demand and investment is around US$1 trillion a year globally.

Meanwhile, private investors prefer to invest in infrastructure that is already built. These investments have lower risk than building something new, and offer the promise of consistent, inflation-adjusted returns over decades.

But the freed-up capital is not really free — governments forgo the future revenues from the leased assets. If the proceeds from privatising the asset are smaller than the future stream of payments forgone, and new projects do not produce revenues, government might need to levy a new tax or cut programs.

This is why good governance is key to ensuring the scheme works. Governments need to get the highest price for their assets and build the best projects for the lowest cost.

Good governance was key to NSW’s success

Between 2013 and 2015, NSW leased two ports, a desalination plant and an electricity distribution network for close to A$15 billion. The process was fast and the lease proceeds were high compared to similar deals. This indicates that the bidding process was effective at tapping into investors’ interest.

A key point is that the NSW legislature did not directly oversee the asset-recycling scheme. In 2011, the government created an independent statutory body, Infrastructure NSW, to identify and prioritise the delivery of critical public infrastructure in NSW.

Infrastructure NSW is made up of specialised units staffed with skilled professionals. One of these manages Restart NSW, the infrastructure fund into which lease proceeds are deposited.

Studying Infrastructure NSW, we see a number of reasons for its success.

While a relatively small agency, Infrastructure NSW is staffed with employees with private sector experience and has representatives of key ministries on its board. The private sector experience means employees are able to monitor and work effectively with private partners, and the knowledge and information gap between the private sector and the government is low.

Its prominent board also means Infrastructure NSW has the power to influence and stand up to the state legislators and administration, with sufficient independence to ensure politicians cannot fund low-priority projects in politically advantageous constituencies. The broad skill set of employees also helps to break down administrative silos and enables an integrated vision of infrastructure.

The importance of these characteristics aligns with results from research on other state-owned investment funds. And the NSW model has been copied.

Infrastructure Victoria, Building Queensland and Infrastructure Tasmania were all created in 2015 with similar characteristics to Infrastructure NSW. These agencies are independent from government, have an integrated vision for infrastructure, and private sector members sit on their boards.

Challenges and opportunities for the US

The use of public-private partnerships in infrastructure service delivery is increasing in the US, but has not reached anywhere near the scale of Australia or Canada. Many US states still lack the legislation, processes and structure to manage it effectively.

Another challenge for the US is identifying new projects with a sustainable source of funding. This is what makes asset recycling appealing for the private sector.

Considerable infrastructure governance and planning efforts are needed at the state level to make a success of asset recycling in the US. A federal initiative along the lines of the Australian government’s incentive program would afford states the opportunity to share their experience and work toward more unified legislation and procurement processes.

The ConversationIn Australia, asset recycling came with the creation of independent agencies and state infrastructure funds. If it wishes to follow Australia down the asset-recycling path, the US should also consider these kinds of governance to equip states with an integrated vision for infrastructure development, and the capabilities to work more effectively with the private sector.

Caroline Nowacki, PhD Candidate, Global Projects Centre, Stanford University; Ashby Monk, Executive and Research Director of the Global Projects Center, Stanford University, and Raymond Levitt, Professor of Civil and Environmental Engineering, Stanford University

This article was originally published on The Conversation. Read the original article.

The NBN: how a national infrastructure dream fell short


Tooran Alizadeh, University of Sydney

Eight years into the Australian government’s National Broadband Network (NBN) project, the nation has an average internet speed50th in the global rankings – that lags well behind many advanced economy countries.

Ongoing secrecy around the NBN, a project that’s likely to cost more than A$50 billion, makes it impossible for the public in most cases to know when and what quality service they will receive. Further, new research shows the NBN rollout was politically motivated and socioeconomically biased from the beginning.

It is perhaps time to remind ourselves of the ups and downs of the project that was once announced as a dream national infrastructure project for the 21st century. This requires a ten-year journey back in time, before we can figure out what needs to be done next.

The ups

In November 2007, after 11 years of Coalition government, Labor was elected on a policy platform that promised a national broadband network.

The NBN company was announced in April 2009 to provide terrestrial fibre network coverage for 93% of Australian premises by the end of 2020. Fixed wireless and satellite coverage would serve the remaining 7%.

Looking back, it’s hard to deny the influence the NBN has had on Australian politics. Perhaps the peak influence was when three independent MPs cited the NBN as one of the key reasons why they supported a Labor government over the Coalition when the 2010 federal election produced a hung parliament.

The final 60 early NBN rollout locations were then announced. The plan was for the first stage of the large-scale rollout to follow, connecting 3.5 million premises in 1,500 communities by mid-2015.

The downs

The early NBN rollout experienced significant delays. This attracted a great deal of “overwhelmingly negative” media coverage. Public opinion polls reflected growing dissatisfaction with the national project.

This dissatisfaction and the September 2013 federal election result changed the fate of the NBN. In 2013, the new Coalition government suspended the first stage of the large-scale fibre-to-premises NBN rollout to reassess the scale of the project.

In 2014, the government announced that the NBN rollout would change from a primarily fibre-to-premises model to a multi-technology-mix model. The technology to be used would be determined on an area-by-area basis.

This change of direction resulted in a prolonged state of uncertainty at the local government level. As it was rolled out, the NBN was widely criticised for being slow, expensive and obsolete.

Current state of play

Delays continue in the construction of the Coalition’s NBN. What can only be described as a downgrade of the original national project is now seriously over budget.

In September 2016, a joint standing committee of parliament was established to inquire into the NBN rollout. The inquiry is continuing.

The bleak status quo only gets worse when the on-the-ground reality of the NBN rollout is considered. While fibre-to-premises rollout is supposed to be limited in the Coalition’s NBN, disturbing examples of misconduct in the NBN installations are highly concerning.

The image below shows one example of many in which heritage-listed buildings (in this case also public housing) are disrespected to the point that suggests an absolute lack of communication between NBN contractors, local government, or heritage agencies.

One heritage-listed house with two NBN installations (Judge Street, Woolloomooloo, NSW).
Author

Who misses out?

In the Coalition’s NBN, the provision of universal high-speed capacity – as envisioned in the original NBN – has been transformed into a patchwork of final speeds and different quality of service. This leads to an important question about equity. It also puts the 60 early rollout locations in the spotlight as these could potentially be the only ones across the nation that enjoy fibre-to-premises NBN.

My new research points to the political motivations in the selection of these lucky 60 sites. Voting patterns in these locations were compared with all electorates in the federal elections from 2007 to 2013. The analysis shows the selections were skewed for potential political gain.

ALP-held seats were the main beneficiaries of the early NBN rollout; safe Coalition-held seats were the least likely to receive the infrastructure.

Tony Windsor, one of the three influential independent MPs in 2010, famously said of the NBN:

Do it once, do it right, and do it with fibre.

He secured priority access for his regional electorate to the early NBN.

Tony Windsor: ‘Do it once, do it right and do it with fibre.’

However, most regional localities were not that lucky. Indeed, research on the sociospatial distribution of the early NBN rollout shows the limited share of regional Australia.

What to do?

It is convenient to blame one political party for the state of chaos that the NBN is in right now. However, politicisation of the project has been part of the problem since day one.

Instead, we call for telecommunication infrastructure to be considered for what it really is: the backbone of the fast-growing digital economy; the foundation for innovation in the age of smart cities and big data; and a key pillar of social equity and spatial justice.

In reality, however, in the age of big data and open data, the lack of transparency around the NBN is shocking. In evidence to the parliamentary committee inquiry in March 2017, the Australian Competition and Consumer Commission expressed concern about the lack of transparency on NBN performance.

The ConversationPolicing the leaks of NBN data is not going to clean up the mess. Quite the opposite: the Australian government needs to share the NBN data, so the exact nature and scale of the problems can be determined. Only then can we talk about finding a way forward in this long journey.

Tooran Alizadeh, Senior Lecturer, Director of Urban Design, University of Sydney

This article was originally published on The Conversation. Read the original article.

The Belt and Road Initiative: China’s vision for globalisation, Beijing-style



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World leaders, led by Chinese President Xi Jinping, meet for the Belt and Road Forum in Beijing.
Reuters

Benjamin Habib, La Trobe University and Viktor Faulknor, La Trobe University

China’s Belt and Road Initiative (BRI) is a multifaceted economic, diplomatic and geopolitical undertaking that has morphed through various iterations, from the “New Silk Road” to “One Belt One Road”. The Conversation

The BRI imagines a US$1.3 trillion Chinese-led investment program creating a web of infrastructure, including roads, railways, telecommunications, energy pipelines, and ports. This would serve to enhance economic interconnectivity and facilitate development across Eurasia, East Africa and more than 60 partner countries.

First proposed in September 2013, it is the signature foreign policy initiative of Chinese President Xi Jinping. It is a project of unprecedented geographical and financial scope.

BRI has two primary components: the overland Silk Road Economic Belt (SREB), and the sea-based 21st-century Maritime Silk Road (MSR). Together, they form the “belt” and “road”.

SREB’s overland infrastructure network encompasses the New Eurasia Land Bridge and five economic corridors: China-Mongolia-Russia; China-Central Asia-West Asia; China-Pakistan; the China-Indochina peninsula; and Bangladesh-China-India-Myanmar. The SREB’s connective sinews will be high-speed rail and hydrocarbon pipeline networks.

The MSR is focused on developing key seaports that connect to land-based transportation routes.

China has been at pains to emphasise the co-operative nature of the initiative and its objective of “win-win outcomes”. In his address to the Belt and Road Forum for International Co-operation in Beijing, Xi framed the BRI in terms of “peace and co-operation”, “openness and inclusiveness”, “mutual learning”, and “mutual benefit”.

Yet behind the rhetoric of harmony and mutuality lies a substantive strategy for growing an emerging China-led operating system for the international economy. This could potentially succeed the US-led Washington Consensus and Bretton Woods system.

What China gets from the BRI

BRI projects are likely to increase China’s economic and political leverage as a creditor.

China has established the multilateral Asian Infrastructure Investment Bank (AIIB) and the $40 billion Silk Road Fund. These are financial vehicles for BRI infrastructure projects, yet the vast bulk of funding to date has come from China’s big state-owned investment banks.

The prospect of access to Chinese financial largesse to fund much-needed infrastructure investments has attracted attention from many prospective partner nations. Many of these appreciate the minimal political conditionalities that come with Chinese finance, in comparison to finance on offer from the International Monetary Fund, the World Bank, and the Asian Development Bank.

The BRI has been viewed as a way for China to productively use its enormous, $3 trillion capital reserves, internationalise the renminbi, and deal with structural issues as its economy navigates the so-called “new normal” of lower growth.

Perhaps foremost among these is the issue of industrial over-capacity. Having maxed out investment-driven growth through a frenzy of domestic infrastructure building following the 2008 global financial crisis, the BRI represents an international stimulus package that will utilise China’s idle industrial capacity and safeguard jobs in key industries such as steel and cement.
This is a significant political dividend for the Chinese government. The Chinese Communist Party’s legitimacy rests on maintaining economic growth and improving people’s standard of living.

In relation to energy security, the BRI will assist China in diversifying its energy sources through greater access to Russian and Iranian oil and gas. This will be achieved by linking with pipeline networks from Russia and Central Asia.

By investing in pipelines from Gwadar, on the coast of Pakistan, to Xinjiang, and from coastal Myanmar to Yunnan, China also can diversify its transportation routes for maritime energy supplies. This reduces its vulnerability to energy supply disruption at maritime choke-points in the Strait of Malacca and the South China Sea.

The establishment of port facilities in the Indian Ocean will also be advantageous to the emerging blue-water capability of the People’s Liberation Army Navy. This would assist in keeping vulnerable critical sea lines of communication open for maritime energy supplies from the Middle East.

Collectively, these measures could reduce the ability of the US Navy to blockade China’s energy supply routes in any future conflict scenario.

Geopolitical implications of the BRI

After more than a decade of conjecture about China’s increasing international assertiveness, the Chinese government has now clearly signalled its intention to assume a more prominent global leadership role through the BRI.

China is aiming to spur a new round of economic globalisation, but in a changed international order that it has a pivotal role in shaping.

The Asian Infrastructure Investment Bank, the BRICS New Development Bank, and the Regional Comprehensive Economic Partnership are the “software of integration” – the financial pillars of trade and investment in this vision.

The BRI is the development vehicle – the “hardware of trade and investment” and the final pillar on which China’s claim to global leadership rests.

Somewhat paradoxically, given the investment focus on hydrocarbon pipelines, the BRI also represents the vehicle through which China is likely to shape the contours of the emerging international post-carbon economy. The Paris Agreement in the UN Framework Convention on Climate Change is a keystone document in this respect.

A combination of the climate emergency and market behaviours are making fossil fuel energy production increasingly uneconomic. This has spurred an accelerating transition away from fossil fuels and toward renewable energy generation.

China is a world leader in green and alternative energy technologies. Through the BIR it is well-placed to be the dominant player in facilitating the transition and roll-out of renewable energy infrastructure across Eurasia. This is especially so since the Trump administration has ceded American influence in international climate politics through its repudiation of proactive climate policies.

Leadership on international climate action is one area in which China can develop significant soft power cache, particularly with developing countries of the global south.

China’s BRI announcement is also reflective of the relative decline of the US as the world’s pre-eminent power. A declaration of intent as bold as that made in Beijing over the weekend at the Belt and Road Forum for International Co-operation would have been inconceivable prior to the 2016 US election.

The Trump administration’s clumsy foreign policy manoeuvrings have damaged US prestige, weakened the integrity of a liberal international order already under duress, and opened a window for China to stake its claim.

The BRI also signals a deepening of the Sino-Russian strategic partnership. This is based on a complementary supplier-consumer energy relationship and a mutual antagonism to the US.

However, not all regional countries see the BRI as a boon. The Indian government has expressed reservations over the BRI’s China-Pakistan Economic Corridor and China’s Indian Ocean ambitions.

The BRI now ups the ante for regional middle powers like Australia that have deftly attempted to hedge between the US and China. Australia’s foreign policymakers must weigh up the case for engaging with the BRI and having a seat at the table as China’s vision takes shape.

Benjamin Habib, Lecturer, School of Social Sciences, La Trobe University and Viktor Faulknor, PhD Candidate in International Relations, La Trobe University

This article was originally published on The Conversation. Read the original article.