Eureka Correspondence

An infrastructure wake-up, ETFs and excess franking credits.

While you were in London, I was in Shanghai.
Your Saturday email, Kohler’s Week: Oh politics!, Infrastructure, UK economy,  talked about the inability of infrastructure to cope with demand and posed the question 'why'. You suggested the reason could be that tax revenue goes on health and welfare, and the answer could be to raise taxes on road use and encourage super funds to invest in infrastructure.
If you had gone to Shanghai instead, you may have come up with a different set of conclusions – short-term governments and the outsourcing of infrastructure have created the problem. And the only viable solution is to develop longer term governments that take back control of public assets and structure sensible taxation policies.
Let me give you two examples of how their planning and infrastructure is stratospherically better than ours. First - up until recently Shanghai had separate railway stations serving towns and cities to the north, south and west. Fares were cheap but the trains were crowded and slow. Their solution was to build a brand new station on the outskirts of the city and create new rail networks and super fast trains. The Chinese people now have a choice. They can still use the old network at the old prices or they can get to cities like Nanjing, Hangzhou or Suzhou in two hours less for more money. It's a similar story with the Pudong airport link. Either you can catch the super fast Maglev train for 40 yuan which takes 7 minutes, or you can continue to use the metro which costs 7 yuan and takes 40 minutes.
Contrast that with Sydney Airport where services have been outsourced (sold) to a company that cares more about profit for its shareholders and employees than it does about providing services for the Australian people. It arranged for the airport bus service to be stopped and roads to be diverted or closed. The result is that residents have no choice between an expensive cab fare or an expensive train fare.
The second example is that they recognised long ago that they had to expand outwards if they were going to cope with population expansion. Sure, they made mistakes in the early days but they have learned from these mistakes and are building new, improved apartment blocks which look more pleasing and have better amenities. It's not just more tasteful buildings, they have planted thousands of trees. Our government persists in a futile 'medium density' housing solution which scars our suburbs, exacerbates our infrastructure problems and lowers our quality of life.
I have attended many economic and fund management presentations which have been scornful of Chinese 'cities that nobody lives in' and 'roads to nowhere'. I think this is not only misguided, it is typical of the 21st century western thinking - short term and inwardly focused. Chinese infrastructure measures are part of a long term planning program based on a forecast population of 2 billion people, not the current 1.3 billion.
Will we wake up before it's too late?

Rick Cosier



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