European Infrastructure and Chinese Firms

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