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China Tries Its Favorite Economic Cure: More Construction

XUZHOU, China — At a cavernous factory in the Chinese city of Xuzhou, 100 new workers have just been hired to produce giant construction cranes. Nearby, at another sprawling factory, employees toil until midnight to assemble drilling and tunneling machines. A few blocks away, their colleagues at a factory that makes dump trucks have received enough orders to keep them busy well into next year.

These factories, and half a dozen more in the city, are all owned by Xuzhou Construction Machinery Group, a state-owned industrial behemoth which manufactures the outsized machines behind China’s latest construction boom.

The company, China’s largest producer of construction equipment, is at the center of Beijing’s strategy to revive the country’s economy in the wake of the coronavirus pandemic by doubling down on a tested strategy: investing in infrastructure projects at home.

China appears to have mostly eradicated the coronavirus within its borders. But outbreaks overseas have caused economic downturns elsewhere that have hurt foreign demand for Chinese exports, including the trucks and machines made in Xuzhou.

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Credit…Giulia Marchi for The New York Times

Foreign markets helped fuel the country’s rapid growth for four decades. But now China is back to doing business with a local customer — itself. Once again, Beijing is investing heavily in the country’s own infrastructure, employing millions of people not just to build new roads, railway lines and sewage systems but also to make the equipment necessary for those projects.

“This year is a very bad year for overseas contracts, and I cannot travel,” said Vincent Cao, the drilling and tunneling equipment manager at the company, better known by its initials XCMG. Despite those limitations, business is booming, he said, adding: “It is a good year for China.”

On its face, China’s strategy appears to be working. Big investments helped make China the first major economy to see its economy rebound after an outbreak, with output rising 3.2 percent from April through June compared to the same period last year. China’s economy is reviving even as Europe’s downturn now appears significantly deeper than originally expected, and the American economy struggles.

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Credit…Giulia Marchi for The New York Times
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Credit…Giulia Marchi for The New York Times
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Credit…Giulia Marchi for The New York Times

Previous investment campaigns have given China some of the best infrastructure in the world, including the fastest train and longest sea bridge. But the latest push comes with its own set of risks and puts China at odds with how much of the rest of the world is handling the downturn.

Practically all of China’s infrastructure projects are being funded with more debt. Economists warn that paying interest on all that debt may be a drag on future growth.

Additionally, some Chinese economists say, the country does not need more record-breaking megaprojects but would instead benefit from modest programs, like building better sewer lines close to people’s homes. While these less-glamorous infrastructure projects improve the quality of people’s lives, they offer little glory or political reward for the local officials who oversee them.

China’s captains of industry have prospered by building the country’s premier projects, not by improving neighborhood sewer lines. Wang Min, XCMG’s longtime chairman, said that he wanted to make big machines for large projects, a space in which few other Chinese businesses can compete.

When told of a sewage line being replaced in Xuzhou using construction equipment of modest size, Mr. Wang was unenthusiastic. “All enterprises can manufacture this kind of excavator, so we don’t have any kind of competitive strength,” he said. “But in terms of the large-scale excavators, XCMG has an advantage.”

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Credit…Giulia Marchi for The New York Times

Long before building some of the world’s largest cranes and bulldozers, XCMG got its start manufacturing land mines for the People’s Liberation Army during World War II. In the 1950s, it briefly produced plows until it switched to making construction machinery.

The company, which is owned by the Xuzhou municipal government, is still inextricably entwined with the state and military, though it no longer produces weapons. XCMG has been an integral part of China’s development strategy, and as the country has prospered so too has the company.

During China’s last infrastructure binge, intended to bail the country out of the global financial crisis, XCMG’s sales soared eightfold from 2008 to 2010. When Xi Jinping, the country’s top leader, rolled out his Belt and Road Initiative in 2013 that offered enormous loans to developing countries to buy Chinese-made goods, XCMG was there, cashing in on exports to countries like Venezuela and Nigeria.

Now the company is shifting gears again. Many developing countries are struggling to repay their debts to state-owned Chinese banks and are unable to buy bulldozers and other gear. China has almost completely closed its borders, adding another wrinkle of difficulty for XCMG managers trying to close deals in distant markets.

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Credit…Giulia Marchi for The New York Times

But China is also looking inward. Mr. Xi has set poverty alleviation as the country’s top economic goal this year. Many of China’s poorest areas are remote villages, and extending road and rail lines to them requires extensive bridge and tunnel construction. That means putting lots of people and lots of XCMG equipment to work.

Premier Li Keqiang, China’s second most powerful leader, called in May for much of the country’s new construction spending to take place close to where people live. That would make it easier for millions of rural workers who have lost their jobs at factories producing goods for export to find new work without migrating to distant cities.

The scope of China’s latest building boom is enormous, and XCMG is playing a pivotal role. Thirty-seven Chinese cities are in the process of building a total of 150 new subway lines, and the company is manufacturing the needed equipment for half of them.

The country’s high-speed rail system, which already connects more than 700 towns and cities, is expanding so fast that it annually buys three times as many pile drivers as the European and American markets combined. XCMG, the world’s biggest producer of pile drivers, has supplied most of them.

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Credit…Giulia Marchi for The New York Times
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Credit…Giulia Marchi for The New York Times
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Credit…Giulia Marchi for The New York Times

But China’s plan to build its way out of its pandemic downturn contrasts with the policies of most Western governments. Western economists generally recommend transferring money directly to consumers rather than constructing ever more railroads and highways.

“It would be more efficient to give them the money than spending two-thirds of it on steel and petroleum and whatever,” said Michael Pettis, a professor of finance at Peking University in Beijing.

A number of Chinese local governments experimented this spring with trying to restart consumer spending by issuing coupons worth a few dollars apiece for meals and other outlays. But the central government subsequently rejected that idea, pushing cities and provinces to spend instead on infrastructure.

As a result, local governments are borrowing heavily to pay for the construction, adding to already immense debts that China’s leaders have tried for years to tame. But projects in remote areas may yield scant economic returns to repay debt. Dozens of new high-speed rail stations have been built in small towns, which ultimately see few paying passengers. In some stations, fewer than three trains make stops each day.

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Credit…Giulia Marchi for The New York Times

Nevertheless, all of that construction is good for XCMG’s business.

The company is now on the cusp of passing John Deere to become the world’s third-largest manufacturer in the sector, trailing only Caterpillar and Komatsu, its archrival. Mr. Wang, the chairman, said that he intended for the company to become the world’s largest in the industry in another 15 years.

“It will be my dream,” he said, “and my purpose for my life.”

To that end, he said, he planned an overhaul of the company’s ownership this autumn. The city of Xuzhou would retain 34 percent ownership in the company while surrounding Jiangsu Province would obtain 17 percent.

Another 47 percent would be sold directly to a group of large private sector and public sector investors and the final 2 percent would be acquired by XCMG’s management. XCMG has begun interviewing possible financial advisers for the deal, said Mr. Wang, who declined to estimate its potential value.

In Xuzhou, the success of the company can be heard in the unrelenting thrum of its cavernous factories and is reflected in the fat overtime paychecks of its 20,000 employees.

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Credit…Giulia Marchi for The New York Times

The crane factory alone has scheduled two Sundays a month of extra production, in addition to a standard six-day workweek. Workers earn double pay on Sundays, said Song Decheng, who leads a team of workers building small cranes.

Yet that extra money has been slow to trickle to other businesses. While XCMG prospers, wide areas of China and parts of Xuzhou itself are still struggling.

Shoppers and repairmen used to throng the city’s construction-materials market, a dusty, two-block area of small shops specializing in paint, cupboards and hardware. On a recent afternoon, it was completely deserted except for the vendors. Shan Kehu, a mortar salesman, said that the only customers who showed up were opportunists looking to stock up on merchandise at a reduced price.

“We’re trying to keep the retail prices where they were before,” he said.

The worries are similar across the city at Xuzhou’s wholesale food market, a blocks-long labyrinth of open-sided steel sheds. A restaurant-supplies vendor, Cao Fang, complained that eateries have practically stopped buying utensils and plates.

At another vendor’s stall, half the bananas were getting too ripe to sell.

“It has gotten a lot better,” said the fruit seller Xin Xiaoli. “But it hasn’t gotten to our normal levels yet.”

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The Struggle to Mend America’s Rural Roads

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Wearing bright safety vests, the county highway workers followed the scalding, red tar kettle as it pumped out liquid rubber bandages, thick as melted butter, to cover the pavement’s worst gashes. From above, it looked like the flip side of skywriting — as if yellow cursors on the ground were carefully spelling out a message for unseen readers in the clouds.

The farmers, truckers and others who traverse these rural roads, though, could quickly tell you what the hieroglyphics mean: Help.

Like hundreds of other small agricultural counties and towns around the country, Trempealeau County in central-west Wisconsin is overwhelmed with aging, damaged roads and not enough money to fix them.

“Our road hasn’t been paved since the ’60s,” said Kellen Nelson, whose family owns Triple Brook Farms on County Road O outside Osseo. “Patching and seal coating is all they’ve ever done.”

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Credit…Tim Gruber for The New York Times

The roads look like losers in a barroom brawl. Thick, jagged cracks run down the asphalt like scars, interrupted at points by bruised bumps. In some places, guardrails are tilted off their moorings like a pair of glasses knocked askew.

“It is not real stable — the shoulders are eroding in many places,” Mr. Nelson said. “When you’re going through with an 80,000-pound load of soybeans and meeting cars, that’s dangerous.”

Throughout much of the Midwest and South, the rural transportation system is crumbling. Two-thirds of the nation’s freight emanates from rural areas. Traffic volume has increased. And over the years, tractor-trailers and farm equipment have been supersized, ballooning in length, breadth and weight.

A legally loaded semi-trailer truck can produce 5,000 to 10,000 times the road damage of one car according to some estimates, said Benjamin J. Jordan, director of the Wisconsin Transportation Information Center at the University of Wisconsin, Madison. Roads and bridges have not kept up.

Although just 19 percent of the country’s population lives in rural areas, those regions have 68 percent of the total lane and road miles, according to the U.S. Department of Transportation.

“We have less resources to maintain and rehabilitate the road system and it’s deteriorating more quickly,” Mr. Jordan said.

The state’s gas tax, which is dedicated to transportation needs, has been unchanged since 2006. A proposal last year from Gov. Tony Evers, a Democrat, for an 8-cent increase was voted down by the Republican-led Legislature, which instead raised vehicle title and registration fees.

“In the last budget, the Legislature and governor did come up with some additional funding,” said Daniel J. Fedderly, executive director of the Wisconsin County Highway Association. “But the problem is it’s one-time funding and it’s not ongoing and it’s not sustainable.”

In Trempealeau, decades of underfunding have left the county of 29,000 people with roughly $60 million to $80 million worth of road repairs. Generally, there is no state or federal assistance to help cover the costs.

“The last time we received money to help with road projects was 2008,” said Al Rinka, commissioner of the county’s Highway Department.

The normal life span of an asphalt road is 30 years. The county’s 292 miles of roads are now averaging 74 years.

Emergency closings and weight limits are as common as a sunrise. Farmers can’t easily move equipment from one field to another. Truckers must make long detours to deliver feed and fertilizers. Drivers end up with broken axles, wrecked suspension systems or busted tires.

Last March, when the snow melted, inadequate drainage around County Road K near Galesville was so severe that several homes were flooded.

In November, a school bus slid off a county road outside Arcadia as it navigated a turn and tipped over into a ditch. No one was seriously injured.

“I get people calling me and screaming at me all the time,” Mr. Rinka said. “In 10 years, we’re going to start turning roads back into gravel” if nothing changes.

This week, temperatures remained below freezing. But when the spring thaw comes, the melting will create soft spots that are easily damaged by traffic.

The county also has the worst bridges in the state, with the highest proportion — 6 percent — given a D rating, requiring tonnage restrictions.

The repair backlog is long. Mr. Nelson of Triple Brook Farms waited three years before a small bridge near his property was fixed. That meant he had to to drive eight miles to get to fields that were just half a mile away because the crossing couldn’t handle the weight of a combine or a tractor. And an emergency weight limit on a bridge on County Road O caused a 12-mile detour each time he sent crops to the grain elevator or river barges.

Still damaged is a 15-ton bridge east of the farm on County Road OO that requires him and his neighbors to reroute their combines and semi-trucks.

“There are things that we can accept that are beyond our control, like viruses and trade deals,” Mr. Nelson said, referring to the effects that soybean farmers felt from the coronavirus outbreak and the tariff war with China. “But when it comes to infrastructure, that’s crucial for everyone, not just farmers. All the businesses that are out here rely on quality roads.”

Quality roads are expensive. Reconstructing a mile costs $300,000, Mr. Rinka said. Chip sealing, a kind of short-term patching, costs $17,000 a mile.

In November, the Trempealeau County Board of Commissioners approved the largest increase ever in the road budget — $5 million — paid for through debt.

With luck, the added funding will cover 15 miles of reconstruction, nearly four times what would be possible with the department’s typical annual budget of $1.2 million to $1.5 million. County Road JJ, where the school bus accident occurred, will get new blacktop. (A new culvert was added to County Road K over the summer.)

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Credit…Tim Gruber for The New York Times
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Credit…Tim Gruber for The New York Times

What’s really needed, Mr. Rinka said, is a “culture change” in residents and business owners who want good roads but don’t want to pay for them.

Someone will beg to have a road repaired, Mr. Rinka said. “I’ll say, ‘O.K., I’ll fix your road, and you’re going to see an increase in your property tax.’

“‘Oh, no, no,’ they say, ‘I don’t want that.’”

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NYT > Business

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As States Add Money to Fix Roads, U.S. Is Urged to Ante Up

Drivers in America topped 3.2 trillion miles in 2018, traveling countless roads and bridges in dire need of repair and improvement, and they are showing little sign of slowing down.

The American Society of Civil Engineers painted a bleak picture of the country’s byways in its Infrastructure Report Card in the spring of 2017, the most recent of its every-four-years editions. The organization’s assessment resulted in an overall D-plus grade. The nation’s roads earned an underwhelming D, while bridges slid by with a C-plus. In all, 45 percent of the nation’s roads were deemed in poor condition.

Since then, the group estimates that vehicle travel has increased 17 percent alongside an unequal 5 percent increase in new roadways. The result has been 6.9 billion hours a year of traffic delays, which cost American motorists roughly $616 each in 2017, the last year tracked.

“You have a lot more cars, but not much more new roadway,” Andrew Herrmann, a former president of the society, said in an interview. “We’re falling behind due to the poor condition of the nation’s highways.”

Federal spending on road infrastructure is struggling to keep up; federal lawmakers staved off a cut to the national Highway Trust Fund last year that would have pulled $7.6 billion away from state highway budgets. This has left the states to fill in some of the gaps, and voters around the country last year approved huge transportation investments via ballot measures.

“The ballot results are a great reminder infrastructure investment remains one of the few areas where red states, blue states, Republicans and Democrats can all come together,” Dave Bauer, president of the American Road & Transportation Builders Association, said in a statement. “It should also demonstrate to lawmakers on Capitol Hill that the public will be on board for the passage of a long-term bill that significantly boosts highway and transit investment at the federal level.”

The need is great.

“Most systems that make up our network of interstate highways are at least 50 years old, so there has to be substantial reinvestment to make sure those assets can keep up with daily wear and tear,” Jim Tymon, executive director of the American Association of State Highway and Transportation Officials, said in an interview. “States and localities are doing their part, and this is a great opportunity for the federal government to do its part.”

The American Society of Civil Engineers says there is a huge backlog of federal highway projects that need funding, to the tune of $836 billion.

Voters are unlikely to know those details — only that their commute is bumpy. But out of 305 transportation-related state and local ballot measures that went before voters last year, 270 — more than 88 percent — were approved, according to the Transportation Investment Advocacy Center at the road builders group.

Most of the ballot measures involved property tax increases to pay for road repairs. The road builders group reported that 57 ballot initiatives across 12 states had the potential to raise $20 million in revenue each. All told, voters approved $7.7 billion worth of investment into transportation projects and $1.9 billion in continued funding over the next quarter-century. Washington State and Colorado were among the few to vote for tax cuts that are likely to squeeze highway budgets.

The issue is important at the local level, too. The United States Conference of Mayors published a campaign agenda wish list in December that called on 2020 presidential candidates to say what they would do to stabilize the Highway Trust Fund, regulate new transportation technology and strengthen public transportation.

“While Washington is so often paralyzed by partisanship, mayors continue to show how things can get done,” Bryan Barnett, the group’s president and the mayor of Rochester Hills, Mich., said in a statement.

President Trump’s initial infrastructure plan — coming in widely mocked “infrastructure week” presentations and promising “gleaming new roads, bridges, highways, railways and waterways all across our land” — stalled a few times before resurfacing again last spring. A $2 trillion infrastructure package seemed politically plausible, until impeachment murmurs became a roar and appeared to sideline the issue.

In the meantime, Democratic candidates have begun talking about infrastructure. At this point, a majority of them have called for big spending on transit infrastructure. Only John Delaney — well outside the top tier of candidates — has proposed raising the federal gasoline tax, which directly finances the Highway Trust Fund. That option seems politically unlikely, but the Congressional Budget Office has made a number of recommendations regarding highway funding, including charging motorists based on road use and initiating performance benchmarks for road projects.

“There are a number of pilot programs going on right now to test vehicle use fees that are going extremely well,” Mr. Tymon said. “It’s not something you’re likely to see in the next federal transportation bill, but it’s something you could see in the next five to 10 years.”

According to the Institute on Taxation and Economic Policy, most states have raised their gasoline taxes over the last several years. Along with the ballot initiatives passed to support highway projects, states could take a bigger role in their own infrastructure destinies. Ironically, more state-level control and funding is one of the tent poles of Mr. Trump’s thus far unrealized infrastructure policy.

“How many ‘infrastructure weeks’ have we had over the past few years? We need one that sticks,” Mr. Herrmann said. “State and local governments are working hard to get things done, but we need the federal government to step up with a bill.”

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