Making China’s Urban Transportation Boom Sustainable

Jerry Zhao makes a case for why China needs to get back to conventional sources of infrastructure funding in this Paulson Policy Memorandum.


Making China’s Urban Transportation Boom Sustainable Cover PhotoWritten by Zhirong Jerry Zhao of the University of Minnesota’s Humphrey School of Public Affairs, this paper offers a broad overview of some of the concerns related to how China makes its transportation infrastructure investments, and whether these are sustainable. These concerns relate to funding mechanisms, decision-making processes, and policy effects, as well as the urban transportation system’s efficiency, equity, and financial sustainability.

The paper serves as a high-level snapshot and does not attempt to answer the question of whether China has over-invested in transport infrastructure or what the optimal level of infrastructure investment should be. Instead, the memo takes a bird’s-eye look at the mechanisms China currently uses to fund transportation investments—in particular, highways, high-speed rail, and urban mass transit.

Zhao argues that China’s urban infrastructure finance and transportation investments over the past several decades relied heavily on borrowing and fuzzy guarantees against future revenues at the local level. Fundamentally, he concludes, China needs to get back to more conventional funding approaches that align with basic public finance principles. The Chinese government, he says, should gradually reduce its reliance on borrowing and financing, but use more direct fiscal revenues (including central subsidies and earmarked local taxes and fees). And, he concludes, it should make related investment decisions through more participatory, transparent, and deliberate budgetary processes.


Zhirong Jerry Zhao

Associate Professor of Public Administration, University of Minnesota

Zhirong Jerry ZhaoZhirong “Jerry” Zhao is Associate Professor of Public Administration at the University of Minnesota, where he teaches in the Hubert H. Humphrey School of Public Affairs. His research focuses on public budgeting and finance, particularly how local governments generate sufficient revenue under ever-increasing constraints, how state and local fiscal structures affect the pattern and effectiveness of public service delivery, and how public and nonprofit organizations interact with each other in budgetary and service decisionmaking. Zhao holds a PhD in Public Administration from the University of Georgia and earned bachelors and master’s degrees in Urban Planning from Tongji University (China). In his earlier career as an urban planer, he did many projects for local governments across China, and published journal articles and book chapters on urban renewal and historical preservation. As a public administration scholar, he has published in the Journal of Public Administration Theory & Research, Public Administration Review, Publius – Journal of Federalism, Public Finance Review, Public Budgeting & Finance, and Municipal Finance Journal, among others. He has led projects supported by the Lincoln Institute of Land Policy, the Cargill Foundation, the Minnesota Legislature, and the Minnesota Department of Transportation, and has provided consulting services for the World Bank, the National Governors Association, and the National Conference of State Legislatures. In 2013, Zhao was elected to the Executive Committee of the Association for Budgeting and Financial Management. Zhao has been a visiting scholar at Peking University-Lincoln Institute and the Chinese University of Hong Kong. He is also a Distinguished Visiting Professor at Shanghai University of Finance and Economics, and a Senior Research Fellow at the Shanghai Institute of Finance and Law.

Topics: Economy, Sustainable Cities