Funding Infrastructure: Why China Is Running Circles Around America

“One Belt, One Road,” China’s $1 trillion infrastructure initiative, is a massive undertaking of highways, pipelines, transmission lines, ports, power stations, fiber optics, and railroads connecting China to Central Asia, Europe and Africa. According to Dan Slane, a former advisor in President Trump’s transition team, “It is the largest infrastructure project initiated by one nation in the history of the world and is designed to enable China to become the dominant economic power in the world.” In a January 29th article titled “Trump’s Plan a Recipe for Failure, Former Infrastructure Advisor Says,” he added, “If we don’t get our act together very soon, we should all be brushing up on our Mandarin.”

On Monday, February 12th, President Trump’s own infrastructure initiative was finally unveiled. Perhaps to trump China’s $1 trillion mega-project, the Administration has now upped the ante from $1 trillion to $1.5 trillion, or at least so the initiative is billed. But as Donald Cohen observes in The American Prospect, it’s really only $200 billion, the sole sum that is to come from federal funding; and it’s not even that after factoring in the billions in tax cuts in infrastructure-related projects. The rest of the $1.5 trillion is to come from cities, states, and private investors; and since city and state coffers are depleted, that chiefly means private investors. The focus of the Administration’s plan is on public-private partnerships, which as Slane notes are not suitable for many of the most critical infrastructure projects, since they lack the sort of ongoing funding stream such as a toll or fee that would attract private investors. Public-private partnerships also drive up costs compared to financing with municipal bonds.

In any case, as Yves Smith observes, private equity firms are not much interested in public assets; and to the extent that they are, they are more interested in privatizing existing infrastructure than in funding the new development that is at the heart of the president’s plan. Moreover, local officials and local businessmen are now leery of privatization deals. They know the price of quick cash is to be bled dry with user charges and profit guarantees.

The White House says its initiative is not a take-it-or-leave-it proposal but is the start of a negotiation, and that the president is “open to new sources of funding.” But no one in Congress seems to have a viable proposal. Perhaps it is time to look more closely at how China does it . . . .

China’s Secret Funding Source: The Deep Pocket of Its State-owned Banks

While American politicians argue endlessly about where to find the money, China has been forging full steam ahead with its mega-projects. A case in point is its 12,000 miles of high-speed rail, built in a mere decade while American politicians were still trying to fund much more modest rail projects. The money largely came from loans from China’s state-owned banks. The country’s five largest banks are majority-owned by the central government, and they lend principally to large, state-owned enterprises.

Where do the banks get the money? Basically, they print it. Not directly. Not obviously. But as the Bank of England has acknowledged, banks do not merely recycle existing deposits but actually create the money they lend by writing it into their borrowers’ deposit accounts. Incoming deposits are needed to balance the books, but at some point these deposits originated in the deposit accounts of other banks; and since the Chinese government owns most of the country’s banks, it can aim this funding fire hose at its most pressing national needs.

China’s central bank, the People’s Bank of China, issues money for infrastructure in an even more direct way. It has turned to an innovative form of quantitative easing in which liquidity is directed not at propping up the biggest banks but at “surgical strikes” into the most productive sectors of the economy. Citigroup chief economist Willem Buiter calls this “qualitative easing” to distinguish it from the quantitative easing engaged in by Western central banks. According to a 2014 Wall Street Journal article:

In China’s context, such so-called qualitative easing happens when the People’s Bank of China adds riskier assets to its balance sheet – such as by relending to the agriculture sector and small businesses and offering cheap loans for low-return infrastructure projects – while maintaining a normal pace of balance-sheet expansion [loan creation]. . . .

The purpose of China’s qualitative easing is to provide affordable financing to select sectors, and it reflects Beijing’s intention to dictate interest rates for some sectors, Citigroup’s economists said. They added that while such a policy would also put inflationary pressure on the economy, the impact is less pronounced than the U.S.-style quantitative easing.

Among the targets of these surgical strikes with central bank financing is the One Belt, One Road initiative. According to a May 2015 article in Bloomberg:

Instead of turning the liquidity sprinkler on full-throttle for the whole garden, the PBOC is aiming its hose at specific parts. The latest innovations include plans to bolster the market for local government bonds and the recapitalisation of policy banks so they can boost lending to government-favoured projects. . . .

Policymakers have sought to bolster credit for small and medium-sized enterprises, and borrowers supporting the goals of the communist leadership, such as the One Belt, One Road initiative developing infrastructure along China’s old Silk Road trade routes.

“Non-Performing Loans” or “Helicopter Money for Infrastructure”?                                 Money that Need Not Be Repaid

Critics say China has a dangerously high debt-to-GDP ratio and a “bad debt” problem, meaning its banks have too many “non-performing” loans. But according to financial research strategist Chen Zhao in a Harvard review called “China: A Bullish Case,” these factors are being misinterpreted and need not be cause for alarm. China has a high debt to GDP ratio because most Chinese businesses are funded through loans rather than through the stock market, as in the US; and China’s banks are able to engage in massive lending because the Chinese chiefly save their money in banks rather than investing it in the stock market, providing the deposit base to back this extensive lending. As for China’s public “debt,” most of it is money created on bank balance sheets for economic stimulus. Zhao writes:

During the 2008-09 financial crisis, the U.S. government deficit shot up to about 10 percent of GDP due to bail-out programs like the TARP. In contrast, the Chinese government deficit during that period didn’t change much. However, Chinese bank loan growth shot up to 40 percent while loan growth in the U.S. collapsed. These contrasting pictures suggest that most of China’s four trillion RMB stimulus package was carried out by its state-owned banks. . . . The so-called “bad debt problem” is effectively a consequence of Beijing’s fiscal projects and thus should be treated as such.

China calls this government bank financing “lending” rather than “money printing,” but the effect is very similar to what European central bankers are calling “helicopter money” for infrastructure – central bank-generated money that does not need to be repaid. If the Chinese loans get repaid, great; but if they don’t, it’s not considered a problem. Like helicopter money, the non-performing loans merely leave extra money circulating in the marketplace, creating the extra “demand” needed to fill the gap between GDP and consumer purchasing power, something that is particularly necessary in an economy that is contracting due to shrinking global markets following the 2008-09 crisis.

In a December 2017 article in the Financial Times called “Stop Worrying about Chinese Debt, a Crisis Is Not Brewing”, Zhao expanded on these concepts, writing:

[S]o-called credit risk in China is, in fact, sovereign risk. The Chinese government often relies on bank credit to finance government stimulus programmes. . . . China’s sovereign risk is extremely low. Importantly, the balance sheets of the Chinese state-owned banks, the government and the People’s Bank of China are all interconnected. Under these circumstances, a debt crisis in China is almost impossible.

Chinese state-owned banks are not going to need a Wall Street-style bailout from the government. They are the government, and the Chinese government has a massive global account surplus. It is not going bankrupt any time soon.

What about the risk of inflation? As noted by the Citigroup economists, Chinese-style “qualitative easing” is actually less inflationary than the bank-focused “quantitative easing” engaged in by Western central banks. And Western-style QE has barely succeeded in reaching the Fed’s 2 percent inflation target. For 2017, the Chinese inflation rate was a modest 1.8 percent.

What to Do When Congress Won’t Act

Rather than regarding China as a national security threat and putting our resources into rebuilding our military defenses, we might be further ahead studying its successful economic policies and adapting them to rebuilding our own crumbling roads and bridges before it is too late. The US government could set up a national infrastructure bank that lends just as China’s big public banks do, or the Federal Reserve could do qualitative easing for infrastructure as the PBOC does. The main roadblock to those solutions seems to be political. They would kill the privatization cash cow of the vested interests calling the shots behind the scenes.

What alternatives are left for cash-strapped state and local governments? Unlike the Fed, they cannot issue money directly; but they can establish their own banks. Fifty percent of the cost of infrastructure is financing, so having their own banks would allow them to cut the cost of infrastructure nearly in half. The savings on infrastructure projects with an income stream could then be used to fund those critically necessary projects that lack an income stream.

For a model, they can look to the century-old Bank of North Dakota (BND), currently the nation’s only publicly-owned depository bank. The BND makes 2 percent loans to local communities for infrastructure, far below the 12 percent average sought by private equity firms. Yet as noted in a November 2014 Wall Street Journal article, the BND is more profitable than Goldman Sachs and JPMorgan Chase. Before submitting to exploitation by public-private partnerships, state and local governments would do well to give the BND model further study.

This article was originally published on


Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of twelve books including Web of Debt and The Public Bank Solution. Her 300+ blog articles are posted at

51 Responses

  1. […] Funding Infrastructure: Why China Is Running Circles Around America […]

  2. I really appreciate your work on themes like this, Ellen. Thank you!

    When you write “Western-style QE has barely succeeded in reaching the Fed’s 2 percent inflation target”, does this take in account that the Consumer Price Index does not (as I understand it) include housing or assets, which is where the QE money has gone, and where there has in fact been big inflation?

  3. I would think that the Chinese banks have the money because the government launch force savings on the peopl

  4. CHINA FIRST …… made CHINA THE FASTEST GROWING ECONOMY in the world… which has lifted 650 million people out from utter poverty in 30 years… has many trillions of US$ in reserve, .. has a socio-economic system which offers security to the population and startup capital to graduates. CHINA HAS A NATIONAL ”PROTECTIONIST” ECONOMY”. As we suggest in our study CAPITALlessISM, A Macro-Model for a strong national economy. What is the China’s secret? As you mention Me. Ellen Brown, China controls its entire banking industry…. and with it, she controls its entire domestic currency and credit creation. It also controls its many trillion $US reserve to foreign acquisitions and foreign aid. So it carefully creates ALL the domestic capital required without begging foreign capital and the IMF or the World Bank. China actually practices A NATIONAL FRACTIONAL RESERVE BANKING. Off course we do not condone its atrocities and human right excesses, in the name of communism. but its evolution from a dictatorial system towards a state coordinated national capitalism, with a blending of private and public enterprises is interesting. So maybe ”…AMERICA FIRST … will also do some benefits to the American people.

    “China’s national economy: A tale of two political systems,” Eric X Li, TED venture capitalists conference, Pls. watch this short humorous presentation of China’s economy by Eric
    We believe that the future is the development of strong national economies, cooperating (not competing) peacefully with each other under the control of an international CAPITALless financial organization, which provides development capital to emerging countries like CHINA does. thank you for your comments.

  5. Private Chinese banks could buy carbon credits from growers anywhere in the world . Every ton of tree contains a half ton of carbon that remains captured even if the tree becomes lumber. we need to capture 200 billion tons of carbon to get the air down to 280 ppm. $3 trillion would do the trick.

  6. Bill. How are we supposed to compete against this as we use a method that is doomed to failure? We use the private banks and pay them an enormous interest while they use their own Chinese banks and thus pay none. See my earlier letter to you.

  7. Reblogged this on California freelance paralegal and commented:
    The United States needs to follow the lead of China in order to have any chance to continue to be a major player in the world economy.

  8. Thank you, Ellen, this is excellent data that you powerfully and clearly document for the game-changing benefits of monetary reform and public banking.

    As an Advanced Placement Econ teacher communicating with ~2,000 colleagues, nobody has offered any refutation to the data you point to as creating what we use for money as a positive number for direct payment of public goods and services (monetary reform), along with the power to create credit as a negative number but at-cost and in-house (public banking). That said, so far zero colleagues have the interest to really understand the proposals.

    Step-by-step as messengers we travel.

  9. I understand that trump financial policies are going in the wrong directions accordingly to the article. Am I correct in my understanding?

    • Yes, in general. Trump pretends to be so big on “winning,” surely even he can see that China is kicking our asses every which way economically. What China is doing OBVIOUSLY works, so why not copy aspects of it as this article indicates? I suppose the answer is that he does exactly what his finely feathered friends at GS want, no more and no less, like all other presidents. To his credit, Trump makes noises about “fair trade” rather than our stupid “free trade” and doing something about the VERY DAMAGING trade imbalance (see Ian Fletcher, “Free Trade Doesn’t Work”), but we haven’t seen him accomplish any more on that than on the apparently mythical wall.

  10. China has copied and improved on the system used by the USA to pay for WWII. We had the RFC, a national bank, which was the largest bank in the world at that time. It functioned in the way the Chinese national banks now function.

  11. excellent

  12. […] Ellen Brown Writers, Dandelion Salad The Web of Debt Blog February 28, […]

  13. Thanks Ellen this is interesting and important.. I do not pretend though to understand why, if the loans comes out of peoples savings in the banks, there is no problem if they are not repaid. This is the part of the article I just cannot grasp.

    Another point though, is that infrastructure always results in an increase in land rent, and that increase has been shown in numerous studies to be more than enough to pay for the infrastructure if it is repaid via land rent capture. China needs to adopt this policy that was advocated for by Sun Yat Sen and is also successful in Hong Kong and Singapore.

    Land rent and money system are intimately related.

    – alanna

  14. Would you be able to explain when banks here in Australia have to go overseas to source money to bolster their money supply for loans etc
    If a bank creates money out of thin air why do they have to go overseas to get money like in the GFC some Australian banks borrowed from the Fed in the USA if they can print money why
    It would be great if you could blog an article on how money is created from go to finish
    Love your work need you here in Australia since they sold the Commonwealth bank we are in a race to the bottom
    Thaking you for your time Kind Regards

  15. This is a great article, thanks for sending it. As I see it, our congress won’t do anything unless they get bribes or money for themselves or donors. Too many also don’t want Gov. in our lives and hate Gov. funding programs even though they would benefit the whole country. It is total stupidity that we don’t have an infrastructure program already set up! Our congress had to first make sure that the wealthy got a big tax cut and put us all in debt– they think of only the rich in the country! So now we have massive debt and nothing to show for it! China does come up with some great plans–once in awhile! L.

    On Tue, Feb 27, 2018 at 2:55 PM, WEB OF DEBT BLOG wrote:

    > Ellen Brown posted: ““One Belt, One Road,” China’s $1 trillion > infrastructure initiative, is a massive undertaking of highways, pipelines, > transmission lines, ports, power stations, fiber optics, and railroads > connecting China to Central Asia, Europe and Africa. According to ” >

  16. […] Funding Infrastructure: Why China Is Running Circles Around America […]

  17. […] of contemporary and historical examples were discussed in my earlier articles, including in Japan, China, Australia, and […]

  18. […] contemporary and historical examples were discussed in my earlier articles, including in Japan, China, Australia, […]

  19. […] of contemporary and historical examples were discussed in my earlier articles, including in Japan, China, Australia, and […]

  20. […] esempi contemporanei e storici sono stati discussi nei miei precedenti articoli, tra cui Giappone, Cina, Australia e […]

  21. […] a number of contemporary and historical examples in my earlier articles, including in Japan, China, Australia and […]

  22. […] contemporary and historical examples were discussed in my earlier articles, including in Japan, China, Australia, […]

  23. […] un certo numero di esempi storici e contemporanei in miei articoli precedenti, tra cuiGiappone, Cina, Australia e […]

  24. […] متعدد با بهره‌گیری از نمونه‌‌های تاریخی از ژاپن، چین، استرالیا و کانادا این موضوع را بررسی […]

  25. […] Today, the best model for that approach is China, which funds infrastructure by borrowing from its own state-owned banks. Like all banks, they create loans as bank credit on their books, which is then repaid with the proceeds of the projects created with the loans. There is no need to tap up the central bank or rich investors or the tax base. Government banks can create money on their books just as central banks and private banks do. […]

  26. […] Aujourd'hui, le meilleur modèle pour cette approche est la Chine, qui finance les infrastructures en empruntant auprès de ses propres banques d'État. Comme toutes les banques, elles créent des prêts sous forme de crédit bancaire dans leurs livres, qui sont ensuite remboursés avec le produit des projets créés avec les prêts. Il n'est pas nécessaire de toucher la banque centrale ou riches investisseurs ou l'assiette fiscale. Les banques publiques peuvent créer de l'argent dans leurs livres comme le font les banques centrales et les banques privées. […]

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