By Kevin Wilcox
Decades of underinvestment in infrastructure in the United States result in a net depreciation of built assets, suggesting weaker economic growth prospects.
China has invested nearly $35 trillion in built assets over the past 15 years, including many new skyscrapers in the Pudong region. A new report predicts that such investments will continue apace. Wikimedia Commons/Leonard G.
October 27, 2015—In the past year, China has officially overtaken the United States as the world leader in built assets—the infrastructure, equipment, and structures that fuel economic growth. China now has $47.6 trillion in built assets compared to $36.8 trillion in the United States. Moreover the two economic superpowers have moved in starkly opposite directions in the past 15 years—China has invested nearly $35 trillion in built assets while the United States's investment has actually depreciated because of underinvestment in infrastructure maintenance, repairs, and new construction.
Globally, the 32 largest economies in the world added $8 trillion in built assets in the past two years. The global total of $218 trillion in existing built assets amounts to more than $30,000 for every person alive today, according to the
Global Built Asset Wealth Index 2015
, an analytical report released recently by the international design and consulting firm Arcadis.
This year's report presents a dichotomy, says Tom Morgan, a vice president of Arcadis and the head of the firm's business advisory sector in North America. "It's really quite clear. In the emerging world, there has been a very rapid increase in investments. The built-asset wealth is really making huge strides forward.
If you contrast that with the more developed economies," he adds, "there is an outright decline in the built-asset wealth of many of the developed economies, particularly in Europe and the U.S."
This dichotomy has long-term economic consequences, the report notes, because of a strong correlation between an economy's built- asset wealth and its ability to improve productivity and increase gross domestic product (GDP).
"With the U.S. investing less than 2 percent of GDP in infrastructure at this time—which is a 20-year low—it is hard to see how the economy is going to be increasingly productive without doing something differently," Morgan says.
The report projects that China's infrastructure investments will continue to grow at a rapid pace as it continues to enact policies aimed at relocating 250 million rural residents into cities and developing a consumer economy as growth in its manufacturing sector slows.
However, China is taking sizable investment risks, developing infrastructure and built assets in advance of anticipated need. "It is a very interesting question as to whether China is overinvesting or not," Morgan says. "I think there is a clear expectation that they are investing ahead of the need in certain places and building capacity before it is required. With that comes risk if that capacity is not needed when it is available and therefore deteriorates before it can be brought into use. Or if it doesn't have the right functionality to support the emerging economy."
Japan holds an unusual place on the built-asset lists. The third-largest economy in terms of built assets also ranks near the top of list of built assets per person, at more than $140,000. Yet, Japan ranks last in terms of the amount of change in built assets between 2000 and 2014, with depreciation and a lack of investment eroding its assets' value by nearly $5 trillion.
Morgan notes that although there are many factors behind the underinvestment in built assets by developed economies, the Great Recession and the protracted recovery have played a role. "If you were to look at the countries that have had depreciation in their built-asset wealth most significantly, these are the countries that are really struggling economically in recent years:Japan, Germany, Russia, France, Italy," Morgan says.
On the other end of the spectrum, the island nation of Singapore was displaced by the oil-rich nation Qatar atop the list of nations with the highest value of built assets per person. Qatar has built assets valued at $198,000 per person, while Singapore's built assets total $192,000 per person. Qatar also leads the list of percentage increase in built assets. Assets grew by nearly 700 percent between 2000 and 2014 in the country, where approximately 14 percent of households have more than $1 million in assets.
Many countries in the Middle East showed strong growth, driven by a desire to broaden their economic bases, which are heavily dependent on oil markets. "It's less about urbanization from rural settings and more about generating economic wealth by diversifying their economy," Morgan explains.
Arcadis prepared the report in collaboration with the Centre for Economics and Business Research, an independent economic forecasting and analysis firm headquartered in London. Researchers examined a breadth of publicly available data from the 32 nations included in the report. One of the key challenges is defining and categorizing the data to enable accurate comparisons.
"A dollar pays for a very different amount of built-asset wealth in one part of the world than in another," Morgan points out. "Being able to compare apples to apples is important in this. Arcadis works hard to make sure we can take effective and consistent comparisons."