29 January 2015
When holidaymakers wing their way north to Hokkaido and the ski-resort town of Niseko, they will be thinking about the flurries of powder snow that fall most days between mid-December and the end of March. But were they to make the same trip in summer, they would be wise to have checked their racing bike into the hold. With smoothly tarred roads stretching in all directions, the area around the resort is highly popular with locally based expats for road racing.
If those visitors first touched down in Tokyo, they would have flown the busiest airline route in the world. In all, 1.25 million people fly the Haneda-Sapporo path per month. That's almost 50 per cent higher than the world's second-busiest flight path, which connects Seoul to Jeju Island in South Korea.
None of this would be possible without infrastructure investment.
Competing on the global stage
Governments target infrastructure investment for a reason. It serves a short-term benefit as a form of government stimulus and an even more significant long-term benefit in terms of the country's attractiveness and efficiency.
"It gets people employed and working and it also creates a competitive advantage," Jeremy Sheldon, managing director for markets, JLL Asia Pacific, says. "It enhances the ability of a country to compete on the global stage."
Asia is set for a huge infrastructure boost that has the potential to revolutionise the continent. "It could catapult some of the poorest economies in the region to the top of the list in terms of business investment," Sheldon says.
The addition of airports, road networks and new mass transit stations has a significant impact on real estate markets. Industrial and logistics real estate are the obvious initial beneficiaries of infrastructure works but, in the long term, the advantages of such construction projects extend to office space and even residential property.
"In many cases we have seen improved office market performance, HK East in Hong Kong, for example, or entirely new locations finally coming of age, such as BGC in Manila" said Sheldon. "With congestion still being a major contributor to pollution and productivity losses, the improvement of infrastructure is vital to improve real estate supply and returns."
But some question whether the billions set to be spent will have strings attached. Much of the financing comes from China, which appears to be using infrastructure as one of its most forceful foreign-policy tools.
China's foreign policy tool
China has put up the bulk of the US$50 billion used to seed the Asian Infrastructure Investment Bank. The bank, launched in October 2014 and due to begin operation in 2015, plans to raise a total pot of US$100 million for infrastructure projects. So far, 24 member nations have signed up from India to Brunei.
China's coffers are funding two other significant initiatives. In November, President Xi Jinping announced that China would invest US$40 billion to create the Silk Road Fund, an infrastructure and trade-finance initiative to extend its network into central Asia, a new take on the centuries-old trade route.
The country has also helped to set up the New Development Bank. The bank, based in Shanghai, was founded by the BRICS nations (Brazil, Russia, India, China and South Africa), who together contributed US$100 billion to finance infrastructure projects in emerging nations and to improve the ability of the BRICS countries to withstand financial crises.
China also works directly with other emerging Asian nations. For instance, in Sri Lanka it is funding large-scale land reclamation in Colombo, the country's capital. China is also heavily involved in the creation of a massive port and it is rebuilding the airport.
Many cities in the West are struggling to develop modern infrastructure, and face the difficulty of redeveloping what exists already. Asia has the scope to develop modern infrastructure first time around, as its economies emerge.
Cities such as Bangkok that were buckling under snarled road traffic have added mass-transit rail systems to ease the issue, and other capitals such as Jakarta would do well to follow suit. Malaysian authorities have been praised for their foresight in mapping out an extensive long-term development plan that includes a high-speed rail link to Singapore, heavy investment in road, rail and ports, and an upgrade to Kuala Lumpur International Airport.
The Philippines has surged to the top as the world's leading nation in terms of voice and data business process outsourcing, partly because of the development of Bonifacio as a central business district, the prospect of improved communications infrastructure, and initiatives such as the Clark Freeport Zone. The zone, a redevelopment of the old U.S. Clark Air Force Base, is being converted into an airport-driven trade and high-tech business hub.
Singapore leads the world in terms of infrastructure attractiveness, according to an Arcadis report, with the highest value per capita of built assets on the planet, at US$156,000 per person. To boost its population from 5.5 million to 6.9 million by 2030, Singapore is doubling the length of the Mass Rapid Transit system to 360 kilometres. It will add a third runway and new airport terminals to Changi Airport and is changing the configuration of its port to double container capacity.
There is much to admire in such comprehensive planning. But, if infrastructure investment is to be productive, "you have to think about population, and you build it around something," Sheldon says. "The idea of an Asian infrastructure bank, well thought through, that has a national relevance to the countries it will benefit is a great thing, benefitting not just the economy but also improving people's quality of life."
"In Asia, you have highly educated people, readily available to help drive growth," Sheldon says. "I don't believe Asian nations doubt whether economic growth will continue, since it is going well. They are far more anxious about how to provide employment and economic stability. Infrastructure is one way of addressing that, and enhancing all people's futures."