European Infrastructure and Chinese Firms

China’s worldwide investments have expanded dramatically over the past decade, particular in infrastructure projects. In the European Union and elsewhere, this has raised some concerns about security and other geopolitical and economic matters. So we invited our European panel of economic experts to express their views on whether Europe’s governments should consider favoring local firms for public infrastructure projects over potentially lower-cost bidders from elsewhere in the world.

We asked the experts whether they agreed or disagreed with the following statement, and, if so, how strongly and with what degree of confidence:

On bids for infrastructure projects, the average European would be better off if Europe’s governments favored European firms over Chinese firms (or firms from any other country with non-profit-related geopolitical strategies) — even if it means sometimes choosing a higher-cost bidder.

Of our 50 experts, 36 participated in this survey, and the reaction was mixed. Weighted by each expert’s confidence in their response, 27% agreed, 24% were uncertain, 40% disagreed, and 9% strongly disagreed. The short comments that the experts are able to include when they participate in the survey reveal some of the key issues.

Of those who agreed with the statement, Lubos Pastor of Chicago Booth replied succinctly: ‘Money isn’t everything’. Beata Javorcik at Oxford said that: ‘This answer holds only for projects related to critical infrastructure (electricity generation, ports, etc.) but not for roads, etc.’ And Daniel Sturm at the London School of Economics noted that: ‘This is really a question about geopolitics rather than economics, but it seems unwise to become too dependent on a non-democratic regime.’

Several experts who said that they were uncertain were explicit about the trade-offs involved in such a policy. Francesco Giavazzi at Bocconi University was clear: ‘Security concerns could justify protectionism but only if they are serious.’ John Vickers at Oxford took the same view: ‘It depends on whether there are serious security issues in play. If not, don’t restrict bidders.’

Similarly, Christian Leuz of Chicago Booth noted: ‘Depends on reason; protectionism clearly bad for consumers; but if a bid is skewed due to other motives, then costs not only consideration.’ Peter Neary at Oxford concurred: ‘It depends; the trade-off is between security and buying from the best supplier; excluding all foreign bidders is just protectionism.’

Agnès Bénassy-Quéré of the Paris School of Economics drew a distinction between a short- and long-term policy focus: ‘Probably not in the short term. More uncertain in the longer term due to scale/lock-in effects, security issues; depends on the sector.’ Olivier Blanchard of the Peterson Institute also foresaw reasons for such a policy: ‘I can see the case for it in some limited circumstances (major disruptions, economies of scale); I also can see the clear room for abuse.’

Of those who disagreed with the statement, Franklin Allen of Imperial College London said:
‘For 5G, high-speed trains, etc., Chinese technology is better than European, US or Japanese; it would be a shame for Europe not to use it.’ Per Krusell at Stockholm University also referred to product quality: ‘I take it that the comparison includes all components (quality, on-time delivery, etc); helping inefficient companies doesn’t improve them.’ And Pol Antras at Harvard commented: “If foreigners want to sell us goods/services at subsidized prices it’s generally good to let them do it. I’m not sure any caveats apply here.’

Focusing specifically on geopolitical concerns, Patrick Honohan of Trinity College Dublin, who also disagreed, said: ‘Geopolitical politics of firm’s home government not per se the most relevant factor in awarding contracts.’ And Jan Pieter Krahnen of Goethe University Frankfurt concluded that: ‘The response to geopolitical interests is a wise strong set of conditionalities if awarded, rather than exclusion from the bidding process.’

All comments made by the experts are in the full survey results.

Romesh Vaitilingam
@econromesh
June 2019

 

On bids for infrastructure projects, the average European would be better off if Europe’s governments favored European firms over Chinese firms (or firms from any other country with non-profit-related geopolitical strategies) — even if it means sometimes choosing a higher-cost bidder.

Responses weighted by each expert's confidence

Participant University Vote Confidence Bio/Vote History
Allen
Franklin Allen
Imperial College London
Disagree
7
Bio/Vote History
For 5G, high speed trains, etc., Chinese technology is better than European, US or Japanese. It would be a shame for Euope not to use it.
Antras
Pol Antras
Harvard
Disagree
5
Bio/Vote History
If foreigners want to sell us goods/services at subsidized prices it’s generally good to let them do it. I’m not sure any caveats apply here
Besley
Timothy J. Besley
LSE Did Not Answer Bio/Vote History
Blanchard
Olivier Blanchard
Peterson Institute
Uncertain
1
Bio/Vote History
I can see the case for it in some limited circumstances (major disruptions, economies of scale). I also can see the clear room for abuse.
Bloom
Nicholas Bloom
Stanford
Disagree
5
Bio/Vote History
Blundell
Richard William Blundell
University College London Did Not Answer Bio/Vote History
Bénassy-Quéré
Agnès Bénassy-Quéré
Paris School of Economics
Uncertain
3
Bio/Vote History
Probably not in the short term. More uncertain in the longer term due to scale/lock-in effectssecurity issues. Depends on the sector.
Carletti
Elena Carletti
Bocconi
No Opinion
Bio/Vote History
Danthine
Jean-Pierre Danthine
Paris School of Economics
Uncertain
1
Bio/Vote History
De Grauwe
Paul De Grauwe
LSE Did Not Answer Bio/Vote History
Eeckhout
Jan Eeckhout
UPF Barcelona
Strongly Disagree
8
Bio/Vote History
Fehr
Ernst Fehr
Universität Zurich
Agree
7
Bio/Vote History
Freixas
Xavier Freixas
Barcelona GSE Did Not Answer Bio/Vote History
Fuchs-Schündeln
Nicola Fuchs-Schündeln
Goethe-Universität Frankfurt
Agree
3
Bio/Vote History
Galí
Jordi Galí
Barcelona GSE
No Opinion
Bio/Vote History
Garicano
Luis Garicano
LSE Did Not Answer Bio/Vote History
Giavazzi
Francesco Giavazzi
Bocconi
Uncertain
8
Bio/Vote History
Security concerns could justify protectionism but only if they are serious
Griffith
Rachel Griffith
University of Manchester
Agree
3
Bio/Vote History
Guerrieri
Veronica Guerrieri
Chicago Booth Did Not Answer Bio/Vote History
Guiso
Luigi Guiso
Einaudi Institute for Economics and Finance
Disagree
5
Bio/Vote History
Honohan
Patrick Honohan
Trinity College Dublin
Disagree
1
Bio/Vote History
Geopolitical politics of firm's home government not per se the most relevant factor in awarding contracts.
Javorcik
Beata Javorcik
University of Oxford
Agree
7
Bio/Vote History
This answer holds only for projects related to critical infrastructure (eg, electricity generation, ports, etc.) but not for roads, etc.
Kleven
Henrik Kleven
Princeton Did Not Answer Bio/Vote History
Krahnen
Jan Pieter Krahnen
Goethe University Frankfurt
Disagree
6
Bio/Vote History
The response to geopolitical interests is a wise strong set of conditionalities if awarded, rather than exclusion from the bidding process.
Krusell
Per Krusell
Stockholm University
Disagree
8
Bio/Vote History
I take it that the comparison includes all components (quality, on-time delivery, etc). Helping inefficient companies doesn’t improve them.
Kőszegi
Botond Kőszegi
Central European University
Disagree
4
Bio/Vote History
La Ferrara
Eliana La Ferrara
Harvard Kennedy
Disagree
4
Bio/Vote History
Leuz
Christian Leuz
Chicago Booth
Uncertain
3
Bio/Vote History
Depends on reason. Protectionism clearly bad for consumers. But if a bid is skewed due to other motives, then costs not only consideration.
Mayer
Thierry Mayer
Sciences-Po Did Not Answer Bio/Vote History
Meghir
Costas Meghir
Yale Did Not Answer Bio/Vote History
Neary
Peter Neary
Oxford
Uncertain
5
Bio/Vote History
It depends. The trade-off is between security and buying from the best supplier. Excluding all foreign bidders is just protectionism.
O'Rourke
Kevin O'Rourke
Oxford
No Opinion
Bio/Vote History
Pagano
Marco Pagano
Università di Napoli Federico II
Uncertain
2
Bio/Vote History
Pastor
Lubos Pastor
Chicago Booth
Agree
5
Bio/Vote History
Money isn't everything.
Persson
Torsten Persson
Stockholm University Did Not Answer Bio/Vote History
Pissarides
Christopher Pissarides
London School of Economics and Political Science Did Not Answer Bio/Vote History
Portes
Richard Portes
London Business School
Disagree
5
Bio/Vote History
Prendergast
Canice Prendergast
Chicago Booth
Disagree
6
Bio/Vote History
Reichlin
Lucrezia Reichlin
London Business School
Uncertain
3
Bio/Vote History
Repullo
Rafael Repullo
CEMFI
Agree
4
Bio/Vote History
Rey
Hélène Rey
London Business School Did Not Answer Bio/Vote History
Schoar
Antoinette Schoar
MIT
Uncertain
7
Bio/Vote History
Sturm
Daniel Sturm
London School of Economics
Agree
7
Bio/Vote History
This is really a question about geopolitics rather than economics, but it seems unwise to become too dependent on a non-democratic regime.
Van Reenen
John Van Reenen
LSE
Strongly Disagree
7
Bio/Vote History
Vickers
John Vickers
Oxford
Uncertain
5
Bio/Vote History
It depends on whether there are serious security issues in play. If not, don't restrict bidders.
Voth
Hans-Joachim Voth
University of Zurich
Agree
7
Bio/Vote History
Weder di Mauro
Beatrice Weder di Mauro
The Graduate Institute, Geneva Did Not Answer Bio/Vote History
Whelan
Karl Whelan
University College Dublin Did Not Answer Bio/Vote History
Wyplosz
Charles Wyplosz
The Graduate Institute Geneva
Uncertain
1
Bio/Vote History
Zilibotti
Fabrizio Zilibotti
Yale University
Disagree
9
Bio/Vote History