If China Can Fund infrastructure with Its Own Credit, So Can We

May 15th-19th has been designated “National Infrastructure Week” by the US Chambers of Commerce, the American Society of Civil Engineers (ASCE), and over 150 affiliates. Their message: “It’s time to rebuild.” Ever since ASCE began issuing its “National Infrastructure Report Card” in 1998, the nation has gotten a dismal grade of D or D+. In the meantime, the estimated cost of fixing its infrastructure has gone up from $1.3 trillion to $4.6 trillion.

While American politicians debate endlessly over how to finance the needed fixes and which ones to implement, the Chinese have managed to fund massive infrastructure projects all across their country, including 12,000 miles of high-speed rail built just in the last decade. How have they done it, and why can’t we?

A key difference between China and the US is that the Chinese government owns the majority of its banks. About 40% of the funding for its giant railway project comes from bonds issued by the Ministry of Railway, 10-20% comes from provincial and local governments, and the remaining 40-50% is provided by loans from federally-owned banks and financial institutions. Like private banks, state-owned banks simply create money as credit on their books. (More on this below.) The difference is that they return their profits to the government, making the loans interest-free; and the loans can be rolled over indefinitely. In effect, the Chinese government decides what work it wants done, draws on its own national credit card, pays Chinese workers to do it, and repays the loans with the proceeds.

The US government could do that too, without raising taxes, slashing services, cutting pensions, or privatizing industries. How this could be done quickly and cheaply will be considered here, after a look at the funding proposals currently on the table and at why they are not satisfactory solutions to the nation’s growing infrastructure deficit.

The Endless Debate over Funding and the Relentless Push to Privatize

 In a May 15, 2017, report on In the Public Interest, the debate taking shape heading into National Infrastructure Week was summarized like this:

The Trump administration, road privatization industry, and a broad mix of congressional leaders are keen on ramping up a large private financing component (under the marketing rubric of ‘public-private partnerships’), but have not yet reached full agreement on what the proportion should be between tax breaks and new public money—and where that money would come from. Over 500 projects are being pitched to the White House. . . .

Democrats have had a full plan on the table since January, advocating for new federal funding and a program of infrastructure renewal spread through a broad range of sectors and regions. And last week, a coalition of right wing, Koch-backed groups led by Freedom Partners . . .  released a letter encouraging Congress “to prioritize fiscal responsibility” and focus instead on slashing public transportation, splitting up transportation policy into the individual states, and eliminating labor and environmental protections (i.e., gutting the permitting process). They attacked the idea of a national infrastructure bank and . . . targeted the most important proposal of the Trump administration . . . —to finance new infrastructure by tax reform to enable repatriation of overseas corporate revenues . . . .

In a November 2014 editorial titled “How Two Billionaires Are Destroying High Speed Rail in America,” author Julie Doubleday observed that the US push against public mass transit has been led by a think tank called the Reason Foundation, which is funded by the Koch brothers. Their $44 billion fortune comes largely from Koch Industries, an oil and gas conglomerate with a vested interest in mass transit’s competitors, those single-rider vehicles using the roads that are heavily subsidized by the federal government.

Clearly, not all Republicans are opposed to funding infrastructure, since Donald Trump’s $1 trillion infrastructure plan was a centerpiece of his presidential campaign, and his Republican base voted him into office. But “establishment Republicans” have traditionally opposed infrastructure spending. Why? According to a May 15, 2015 article in Daily Kos titled “Why Do Republicans Really Oppose Infrastructure Spending?”:

Republicans – at the behest of their mega-bank/private equity patrons – really, deeply want to privatize the nation’s infrastructure and turn such public resources into privately owned, profit centers.  More than anything else, this privatization fetish explains Republicans’ efforts to gut and discredit public infrastructure  . . . .

If the goal is to privatize and monetize public assets, the last thing Republicans are going to do is fund and maintain public confidence in such assets.  Rather, when private equity wants to acquire something, the typical playbook is to first make sure that such assets are what is known as “distressed assets” (i.e., cheaper to buy).

A similar argument was advanced by Noam Chomsky in a 2011 lecture titled “The State-Corporate Complex: A Threat to Freedom and Survival”. He said:

[T]here is a standard technique of privatization, namely defund what you want to privatize. Like when Thatcher wanted to [privatize] the railroads, first thing to do is defund them, then they don’t work and people get angry and they want a change. You say okay, privatize them . . . .

What’s Wrong with Public-Private Partnerships?

Privatization (or “asset relocation” as it is sometimes euphemistically called) means selling public utilities to private equity investors, who them rent them back to the public, squeezing their profits from high user fees and tolls. Private equity investment now generates an average return of about 11.8 percent annually on a ten-year basis. That puts the cost to the public of financing $1 trillion in infrastructure projects over 10 years at around $1.18 trillion, more than doubling the cost. Moving assets off the government’s balance sheet by privatizing them looks attractive to politicians concerned with this year’s bottom line, but it’s a bad deal for the public. Decades from now, people will still be paying higher tolls for the sake of Wall Street profits on an asset that could have belonged to them all along.

One example is the Dulles Greenway, a toll road outside Washington, D.C., nicknamed the “Champagne Highway” due to its extraordinarily high rates and severe underutilization in a region crippled by chronic traffic problems. Local (mostly Republican) officials have tried in vain for years to either force the private owners to lower the toll rates or have the state take the road into public ownership. In 2014, the private operators of the Indiana Toll Road, one of the best-known public-private partnerships (PPPs), filed for bankruptcy after demand dropped, due at least in part to rising toll rates. Other high-profile PPP bankruptcies have occurred in San Diego, CA; Richmond, VA; and Texas.

Countering the dogma that “private companies can always do it better and cheaper,” studies have found that on average, private contractors charge more than twice as much as the government would have paid federal workers for the same job. A 2011 report by the Brookings Institution found that “in practice [PPPs] have been dogged by contract design problems, waste, and unrealistic expectations.” In their 2015 report “Why Public-Private Partnerships Don’t Work,” Public Services International stated that “[E]xperience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure and divert government spending away from other public services. They conceal public borrowing, while providing long-term state guarantees for profits to private companies.” They also divert public money away from the neediest infrastructure projects, which may not deliver sizable returns, in favor of those big-ticket items that will deliver hefty profits to investors.

A Better Way to Design an Infrastructure Bank

The Trump team has also reportedly discussed the possibility of an infrastructure bank, but that proposal faces similar hurdles. The details of the proposal are as yet unknown, but past conceptions of an infrastructure bank envision a quasi-bank (not a physical, deposit-taking institution) seeded by the federal government, possibly from taxes on the repatriation of offshore corporate profits. The bank would issue bonds, tax credits, and loan guarantees to state and local governments to leverage private sector investment. As with the private equity proposal, an infrastructure bank would rely on public-private partnerships and investors who would be disinclined to invest in projects that did not generate hefty returns. And those returns would again be paid by the public in the form of tolls, fees, higher rates, and payments from state and local governments.

There is another way to set up a publicly-owned bank. Today’s infrastructure banks are basically revolving funds. A dollar invested is a dollar lent, which must return to the bank (with interest) before it can be lent again. A chartered depository bank, on the other hand, can turn a one-dollar investment into ten dollars in loans. It can do this because depository banks actually create deposits when they make loans. This was acknowledged by economists both at the Bank of England (in a March 2014 paper entitled “Money Creation in the Modern Economy”) and at the Bundesbank (the German central bank) in an April 2017 report.

Contrary to conventional wisdom, money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off. The Bank of England report said that private banks create nearly 97 percent of the money supply today. Borrowing from banks (rather than the bond market) expands the circulating money supply. This is something the Federal Reserve tried but failed to do with its quantitative easing (QE) policies: stimulate the economy by expanding the bank lending that expands the money supply.

The stellar (and only) model of a publicly-owned depository bank in the United States is the Bank of North Dakota (BND). It holds all of its home state’s revenues as deposits by law, acting as a sort of “mini-Fed” for North Dakota. According to reports, the BND is more profitable even than Goldman Sachs, has a better credit rating than J.P. Morgan Chase, and has seen solid profit growth for almost 15 years. The BND continued to report record profits after two years of oil bust in the state, suggesting that it is highly profitable on its own merits because of its business model. The BND does not pay bonuses, fees, or commissions; has no high paid executives; does not speculate on risky derivatives; does not have multiple branches; does not need to advertise; and does not have private shareholders seeking short-term profits. The profits return to the bank, which distributes them as dividends to the state.

The federal government could set up a bank on a similar model. It has massive revenues, which it could leverage into credit for its own purposes. Since financing is typically about 50 percent of the cost of infrastructure, the government could cut infrastructure costs in half by borrowing from its own bank. Public-private partnerships are a good deal for investors but a bad deal for the public. The federal government can generate its own credit without private financial middlemen. That is how China does it, and we can too.

For more detail on this and other ways to solve the infrastructure problem without raising taxes,  slashing services, or privatizing public assets, see Ellen Brown, “Rebuilding America’s Infrastructure,”a policy brief for the Next System Project, March 2017.


Ellen Brown is an attorney, founder of the Public Banking Institute, a Senior Fellow of the Democracy Collaborative, and author of twelve books including Web of Debt and The Public Bank Solution. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

31 Responses

  1. The budget put aside for ‘infrastructure’ has NEVER, EVER gone to infrastructure. Instead, it has disappeared in someone’s or some project’s pocket every time. Yet, ‘infrastructure’ is always the main theme of every political crook running for political office for many decades now. It’s a cash cow that’s already been milked!

  2. Every nation could finance her own economy as China does with its own national bank in order to assure balance in her economy, i.e. balance production with domestic consumer survival needs.

    1 using a new concept: NATIONAL artificial capital creation process, called “NATIONAL FRACTIONAL RESERVE BANKING’’ rights,.. instead of giving total freedom to private banks to create domestic currency.by credit creation.

    Moreover after that we could innovate by creating a public-private banking system under the coordination of a democratic government.

    2 then FRANCHISING this right back to the PRIVATE BANKS…
    4 inventing a new banking : instead of ASSET BASED collateral banking we should go to a new POTENTIAL BASED collateral banking.
    5This new E-CAPITAL CREATION process would allow a massive capital injection in the economy and more business for banks.
    in this process.

    this new virtual capital creation is government supervised in order to create a precise balance between a nation’s production capacity with its consumer survival needs, and in order to prevent speculative interventions.
    this is described in CAPITALlessISM.com, by Dr.Anthony Horvath

  3. ellen brown thank you for helping me keep my economic knowledge growing. i’ve been giving copies of yer recent articles to my california state senator, holly mitchell, so please keep them coming and who knows, maybe some day california will have its own public bank.

  4. […] Ellen Brown Writer, Dandelion Salad The Web of Debt Blog May 17, […]

  5. Reblogged this on Dreams of Liberty and commented:
    Sure we can! It’s just not on the elite benefit it seems. I still ant understand why.

  6. I don’t think holding China up as a gold standard makes a lot of sense. China has overbuilt. Empty cities and over building increases prices for scarce resources that would have been better used elsewhere. Who decides which projects need to be built w this debt? I have much less trust in a govt committee, than private corporations using their own money. The public private partnerships are generally the worst of both worlds though, socializing failures to the taxpayer while putting profits in the politically connected crony’s pockets.

    • The article doesn’t hold China up as the gold standard, but points out that it is doing something sensible that we could do too to pay for infrastructure. With over 10k miles of highspeed trains to the USA’s zilch, 1.5 times as many miles of express highways as we have, and the most impressive bridges in the world, China knows how to do infrastructure, and has in fact left us in the dust in this department. Leaving infrastructure up to corporations, as you suggest, will get us nowhere.

  7. Amtrak, postal service, VA, etc.

  8. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. –Thomas Jefferson

  9. gordonk@greatdividekarriers.com

    From: WEB OF DEBT BLOG To: sctt407@att.net Sent: Wednesday, May 17, 2017 10:21 AM Subject: [New post] If China Can Fund infrastructure with Its Own Credit, So Can We #yiv2781475537 a:hover {color:red;}#yiv2781475537 a {text-decoration:none;color:#0088cc;}#yiv2781475537 a.yiv2781475537primaryactionlink:link, #yiv2781475537 a.yiv2781475537primaryactionlink:visited {background-color:#2585B2;color:#fff;}#yiv2781475537 a.yiv2781475537primaryactionlink:hover, #yiv2781475537 a.yiv2781475537primaryactionlink:active {background-color:#11729E;color:#fff;}#yiv2781475537 WordPress.com | Ellen Brown posted: “A key difference between China and the US is that the Chinese government owns the majority of its banks. About 40% of the funding for its giant railway project comes from bonds issued by the Ministry of Railway, 10-20% comes from provincial and local ” | |

  10. […] latest post was reprinted at Counterpunch, plus Common Dreams, plus here and here and here and here and […]

  11. “If China Can Fund infrastructure with Its Own Credit, So Can We” is almost nonsensical: Marco Polo commented in amazement, 800 years ago about how Kublia Khan was able to force merchants to provide him with goods by presenting the world’s first fiat paper money. Today, basically any nation can do likewise- as long as it can get away with it (!)- there is no hard backing for any of the currencies- but one thing is for sure: the production of unlimited fiat to compete for the world’s resources is pure inflation in action, and wages have in no way kept up with the expansion of debt in a single country. The much derided gold standard was a matter of police enforcement, if you will, of money. But central bankers, being thick as thieves, will never serve the masses with money as a store of value, in part because they are in league with governments who only benefit from people being forced into higher tax brackets. And when situations become intolerable, as in Venezuela, or Puerto Rico, the enraged populace is told “Well, you voted for all this debt,” just before the tear-gassing starts.

    • Re ” the production of unlimited fiat to compete for the world’s resources is pure inflation in action”, perhaps you might nevertheless consider public sector activity that does not compete for scarce resources, in this proposition:

      1. Education is the transfer of knowledge from teacher to student, requiring mainly time (and mental application) from the participants. Since this resource (ie, time) is – for the sake of the argument – FREE AND UNLIMITED, and hence not subject to laws of supply and demand (as described by classical economics), governments ought to be able to fund universal, free education to the highest levels possible (commensurate with students’ abilities), without recourse to taxation (of the private sector).

  12. Reblogged this on The Most Revolutionary Act and commented:
    A key difference between China and the US is that the Chinese government owns the majority of its banks. Like private banks, state-owned banks simply create money as credit on their books. The difference is that they return their profits to the government (instead of Wall Street), making the loans interest-free. The US government could do this too, without raising taxes, slashing services, cutting pensions, or privatizing industries.

  13. Hi Ellen
    Thanks so much for your work on public banking. I have been a fan since 2008 when Web of Debt was published. I read it twice , bought three copies, and passed them out to friends and relatives. I have gone on to become an advocate of public banking and have joined a group dedicated to controlling the influence of money in government.

    Our Washington State Senator Bob Hasegawa recently brought a bill to the state legislature (for the 3rd time!), SB5464, to authorize a public state trust in Washington. An identical bill, HB2039 was introduced in the house.

    For the 3rd time it has failed to come out of committee due to heavy lobbying activity. We will try again, and again, if necessary. We feel public banking is an essential part of a larger effort to control the influence of money in politics and to ensure security of public revenues.

    We see money in government as a 3-part issue;
    1 – Controlling money in banking through establishment of publicly owned banks.
    2 – Controlling the influence of money by publicly financing election campaigns, employing one of two methods;
    permitting only small donations.
    permitting no donations nor gratuities of any kind beyond that of public funding.
    3 – Controlling payment, following retirement of public officials, for services rendered during time in office.
    Massive speaking fees, book contracts, ‘creative’ mgmt of stock portfolios, are some of the many ways of paying for influence during time in office. These must be exposed and controlled in order to curb the effect of money in government.

    We feel the issue of money in government is fundamental and if left uncontrolled, will prevent significant change from happening, and will lead to the eventual destruction of our political system. We feel one or more amendments to the Constitution will be required.

    Our reason for presenting this statement to you and the readers of your blog is to ask for help in solving this problem. The complexity of creating an effective and workable control to remuneration without intruding on the rights of individuals to seek just reward for service, while still remaining within ethical boundaries will be no small task.

    Should retired politicians and their staff be prevented from seeking just reward for service following their term in office? Peddling influence is another matter. An effective solution must Interrupt the money stream that is so lucrative for those public officials who choose ‘revolving door’ politics.

    A fine line is involved. How to define that line? How to solve this most fundamental problem so that personal endeavor is justly rewarded yet our system of government is not destroyed by unscrupulous politicians?

    Money in government is a global concern. Should it be treated globally or locally? How to do so workably and effectively? We are hoping some of you will be willing to put your minds to this issue and help come up with a solution. We all stand to benefit.

    • Hi Eaglemount,

      HG Wells said “Civilisation is a race between education and catastrophe”.

      (Progressive) politicians might consider this proposition:

      1.Education is the transfer of knowledge from teacher to student, requiring mainly time and mental application from the participants. Since this resource (ie, time) is – for the sake of the argument – FREE AND UNLIMITED, and hence not subject to laws of supply and demand (as described by classical economics), governments ought to be able to fund universal, free education to the highest levels possible (commensurate with students’ abilities), without recourse to taxation (of the private sector).

      Perhaps all available labour, not required by the private sector, could be utilised by the public sector and funded without recourse to taxation, eg, caring for the elderly/disabled in their own homes, activity which does not compete for private sector physical or intellectual resources, and requires only time and effort from available workers (who might be rated and reported to a central agency by the clients receiving the service).

      [Of course ideally such a system would have global oversight – Keynes’ 1944 Bretton Woods proposals for a new post-war global financial and economic system covered this ground – but his proposals were rejected by US conservatives (as we would expect, since conservatism is based on maximisation of an individual’s (or a particular nation’s) claims to the world’s resources according to individual ability).

      In contrast, the UN embodies the progressive position ie sufficient and just access to the world’s resources by all – but, just as Keynes’ proposals were rejected by conservatives, the UN was crippled at its inception by great power rivalry (and conservative insistence on the UNSC veto power).

      On election campaigns, of course they should be entirely publicly funded…..

      In the meantime, may your continuing efforts in Washington bear fruit.

  14. North Dakota has its own state bank, and it is doing better than the other forty-nine. If we followed our Constitution, Article 1, Section 8, and printed our own money, we would be much better off.

  15. Reblogged this on Floating-voter.

  16. […] May 20, 2017 by Ellen Brown By Ellen Brown, The Web of Debt Blog […]

  17. Reblogged this on California freelance paralegal and commented:
    Considering what a horrible job the Fed (a private for-profit institution) has done with the money I believe that a public bank could work provided that it is run properly with the right people.

  18. Reblogged this on necltr and commented:
    When did we cease to own ourselves?

  19. No, we can’t.

    You forgot that the inmates have taken over the asylum. Not. Going. To. Happen.

    Conservatives have spent the last 35+ years committing genocide against the middle class using trickle-down/supply-side Satanomics, they are not going to piss away all that time and effort to do anything that does not result in America being stabbed in the back by them.

  20. What if China had a $350 billion trade deficit to us? We might be able to afford better infrastructure.

  21. […] Full Article: If China Can Fund infrastructure with Its Own Credit, So Can We […]

  22. […] ⇧   If China Can Fund infrastructure with Its Own Credit, So Can We | WEB OF DEBT BLOG […]

  23. I’ve gone to two town halls in San Francisco and brought up the need for a CA state bank to my State senators and assemblyman…. They act like it do not know what I’m talking about. I handed your article about a California bank with Phil Ting personally.
    Do you know any other like minded individuals in SF or CA I can contact?

    parallel with RUSSIA


  25. Dear Ellen Brown:

    Haven’t written you in a long time. Wish to write you concerning an idea establishing banking within the counties currently re-installing common law jurisdiction and more. Would prefer to write you directly either via email or US Mail.

    Thank you,

  26. Is there formal documentation of the Chinese monetization?

Leave a Reply to Robert Cancel reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: