In the Globe and Mail, Zhiwu Chen, professor of finance at the Yale School of Management, asks why the Chinese government is investing the stimulus package in major infrastructure projects and not on social programs:
In China, the government is not elected, so winning more votes is not part of the calculation, and returning money to the people is never the choice. The government doesn’t just spend it, but always seems to favour tangible things such as skyscrapers, fancy government buildings, highways, and big industrial projects.
This partly explains not only why democracies such as India and Brazil lag behind China in infrastructure, but also why China is focusing its new stimulus package on transport systems (railroad projects alone will receive more than half of the $586-billion stimulus). In a non-democracy, officials are held accountable to their superiors, not to voters. And for one’s superiors, tangible projects are the easiest to recognize.
Indeed, while China’s new stimulus plan overwhelmingly emphasizes infrastructure, it gives short shrift to social programs, such as health care and education, even though they can reduce household saving pressure and increase private consumption.