How a Chinese Highway Became a Boulevard of Broken Dreams By MARK MAGNIER IN THE WALL ST JOURNAL, July 27, 2016

CHANGTANG, China—A highway project here that is four years behind schedule and hundreds of millions of dollars over budget helps explain why Beijing’s effort to raise infrastructure spending is an increasingly ineffective way to boost thenation’s economy.
When construction on the Chang’An Expressway, originally intended to cost $880 million, began in 2008 it seemed a sure bet. Its private partners stood to collect decades of lucrative toll revenue. The economy and the environment would benefit by slashing three hours off a four-hour trip along the 59-mile route, in an area plagued by miles-long traffic jams.
But the project, in central Hunan province, has been beset by financial problems, resident protests and a corruption probe, issues that also have hindered hundreds of other projects across the country. Such setbacks are hurting Beijing’s efforts to halt a decline in economic growth that is rippling across the globe and threatening political stability at home. But it’s not only that.
China also is drawing less benefit from the infrastructure projects that it does complete. After a 15-year period in which the country built thousands of roads, airports, bridges and buildings, partly to offset the global financial crisis, the economic benefit of adding even more is decidedly less valuable.
Local governments’ heavy debt loads from prior stimulus efforts are further obstructing China’s efforts to stimulate the economy with infrastructure spending. More of their borrowed money is going to pay back previous loans rather than into productive investments.
Many of these projects lose money, adding still more debt. In 2014, Chinese toll roads alone had an operating deficit of $23.5 billion, double the 2013 level and quadruple 2011’s level.
The upshot: China needed twice as much investment per unit of growth in 2015 as it did in 2010, according to official data.
All of this hasn’t stopped Beijing from doubling down on infrastructure spending as exports, manufacturing and other growth engines sputter. The government has announced plans to spend $749 billion alone on transport projects over the next three years, compared with $171 billion worth built last year.
The Chang’An Expressway, the last leg of a 1,650-mile expressway linking Inner Mongolia to Guangdong province, illustrates some of the issues plaguing large Chinese infrastructure projects. The development has left a trail of financial pain and debt in its wake.
“This has devastated our family,” said Li Xihua, a subcontractor hired to build part of the highway. “Our house, storefront, cars, all put up as collateral. I’m hugely stressed.”
In 2008, the project was awarded with great fanfare to Zhejiang Youcheng Holding Group, a property, textile, building materials and investment management group with little construction experience, registration documents show. Under Chinese law, a least three candidates must bid for large infrastructure projects. There is no public record of such a process for Chang’An.
The Hunan Transport Department didn’t respond to repeated requests for comment.
For help, Zhejiang Youcheng tapped both an investment company and a builder with whom it shared directors and shareholders. Some of the 18 subcontractors they hired said there were early signs of funding problems. For example, the project balked at paying some farmers living in the expressway’s path, spurring ill will and costly delays. One elderly farmer “laid down in front of our equipment on and off for three years,” said subcontractor Xia Chunguo.
But stimulus money was flooding the economy at the time and most participants didn’t worry. “Little did we know there’d be so much trouble ahead,” said Li Ye, another subcontractor.
In late 2012 the money suddenly dried up. Subcontractors, who said they had already built 80% of the expressway by then, were told the interruption was temporary. It lasted three years, leaving them jobless and indebted. In separate postings, the Transport Department website later cited “funding problems,” without elaborating, and said the project was at least $300 million over budget.
Neither Beijing nor Hunan has publicly estimated the economic cost of the delays.
Several subcontractors sued one of the three main contractors this year, claiming breach of contract. As a whole, the group says it is owed a combined $90 million. The court is considering whether to accept the suit, an official said.
The project’s terms called for a third of the $880 million budget to come from Zhejiang Youcheng and two thirds from bank loans. Citic Bank is now trying to recover overdue loans from Zhejiang Youcheng, a Citic official said.
Li Gang, a former Hunan county land official who worked on the highway project for a decade before retiring in May, said regulatory oversight was weak and the contractors’ financial strength wasn’t adequately vetted.
“The bidding process is pretty much a rubber stamp,” he said. “As long as you have a good relationship with the government, you can easily win the bid.”
The three main contractors couldn’t be reached or declined to comment. One manager texted that his “higher ups” advised him against speaking. The official Xinhua News Agency cited Zhejiang Youcheng Chairman He Yefeng in 2015 as saying that the money was all spent appropriately but that costs exceeded expectations.
Adding to the uncertainty, Hunan’s Transport Department faced a three-year corruption probe until 2014—overlapping with a massive graft crackdown by President Xi Jinping—in which 27 officials were convicted and sentenced to as long as life in prison. “The corruption investigation stalled the project,” said Mr. Li, the retired official.
Construction on Chang’An finally resumed late last year with new contractors and is still under way.
Xu Xinjian, a bridge technician, was recently hired to help complete a stretch of road passing through Changtang, a town of ambling chickens, gritty car-repair shops and women chopping raw meat on the sidewalk. Mr. Xu, standing beneath a crane adorned with an image of Mao Zedong, said his crew found only 36 of the 144 bridge spans that were supposed to have been completed.
A few miles farther along in Xianxi county, a former subcontractor pointed with pride at a massive tunnel he punched through a mountain, but issued a lamentation.
“Nobody wins, this whole thing is a huge tragedy,” said the contractor, Zhu Weichang, as his successor’s pile driver banged away to finish the tunnel. “This wouldn’t happen in a nation governed by rule of law.”  http://www.wsj.com/articles/how-a-chinese-highway-became-a-boulevard-of-broken-dreams-1469659791