Monday, October 18, 2010

The Macquarie solution to Sino-American relations

Michael Pettiis had an interesting, but politically difficult solution to the economic problem of the imbalance between China and the United States (which is why he put as a Modest Proposal in the Swift manner).

Pettis suggests a "New Deal" for both China and America. Instead of the Chinese wildly spending on excessively infrastructure, which is creating an asset bubble in China, why not spend it on American infrastructure? Over time, better American infrastructure will raise productivity and stimulate US consumer spending, which benefits China. It's a win-win.

What Pettis is proposing is the Macquarie solution for America. A number of years ago, Macquarie was known for raising funds and securitizing infrastructure projects, e.g. toll roads, bridges, etc. If the state of Illinois wanted to build a new highway, or if California wanted to upgrade one of its ports, or construct a desalination plant, it could create an authority to build that highway and then collect the tolls. The tolls would then be used to finance the construction. In effect, the Pettis proposal would change Chinese investment in the US from debt (Treasuries) to equity (toll roads, etc.) What's more, a for-profit construction authority would pay more attention to the economics of the project, which would mitigate much of the pork that goes on in many of these endeavors. It would create also American jobs in engineering and construction - another win-win.

It's a very intriguing idea.

1 comment:

Dee said...

But this has already been going on for several years -- look up "NAFTA Superhighway" and "Trans-Texas Corridor" (TTC). The TTC is a small part of the infrastructure project which is to be a major transportation arterial for rail, trucks, pipelines, and electricity reaching from Texas to the Canadian border. Much of it is funded by the Chinese as a way of getting goods into the US more cheaply than through the current ports, and they also get to collect the tolls to repay the costs. As you point out, it's a good business decision on their part.

Also, a Chinese company bought out a major international port operator but was forced to divest itself of US ports.