SHENYANG, China--In a tunnel deep beneath Shenyang's busy streets, Lu Ze flicked a switch and a lone light bulb revealed a cluttered concrete floor. Electric wires and metal pipes lay in a jumble. Tiles dangled from the ceiling. Dust hung heavily in the air.

But Lu, a construction supervisor, was supremely confident that a train would be gliding past the very same spot by October, the first of 11 metro lines planned in this rustbelt city in northeastern China. "We've been working nearly every day for the past year and we will have it done on schedule. Then we'll get a month off and come back to work on the second line," he said with a weary grin.

Shenyang's ambitions are vast in scale and yet commonplace in China. More than 30 cities have started building or have submitted proposals for entirely new metros. The five cities with existing systems are expanding them. And all of this is just part of a larger investment frenzy in railways, airports and roads.

The stakes could not be higher. Managed well, the infrastructure boom will bestow on China the hardware to power its growth for decades to come. Managed poorly, money will be squandered, leaving the country with bridges to nowhere and a hefty bill.

But China has not become the world's fastest-growing economy by dragging its feet. Things tend to move quickly once the government throws its weight behind big projects.

"You solicit views, you apply for approval and then you just do it," Zhang Zhenbang, vice general director of Shenyang Metro. "London needed more than a hundred years to build up its metro, but we'll need less than half that in China."

Over-Investment?

When exports collapsed last year due to the global financial crisis, China turned to infrastructure to make up the shortfall. It built and expanded 35 airports, opened 5,557 kms (3,453 miles) of railways, including the world's fastest high-speed line, paved 98,000 kms of highways and, of course, ramped up work on metros from Shenyang in the north to Guangzhou in the south.

Overall, gross capital formation--the best indicator of infrastructure spending--accounted for 8 percentage points of the economy's 8.7 percent growth last year. The headlong rush to build, build, build has inspired a heated debate among China-focused economists about whether the government is simply overdoing it.

Michael Pettis, a senior associate at the Carnegie Endowment for International Peace in Beijing, is adamant that China already has the world's best infrastructure for its level of development. Investing too much now suppresses the household spending that is badly needed to prop up a hobbled global economy.

"The growth in Chinese consumption will necessarily be limited by the growth in Chinese household income, and Chinese household income cannot grow quickly enough if they are forced to pay for infrastructure that's not economically justified," he recently wrote.

Yet others think that the better benchmark is not countries at China's current stage of development, but those it is quickly catching up to. Chinese rail density is, for example, only 40 percent of the U.S. level and 11 percent of Japan's.

Qing Wang, an economist at Morgan Stanley, noted that China's rate of return on capital--a basic measure of investment efficiency--far outstrips that of most advanced countries. "We would argue that claiming 'over-investment' in China simply based on the pace of investment growth is equivalent to making the observation that 'a person must be overweight because he seems to be eating a lot'," Wang wrote in a research note. "A hearty appetite reflecting a fast metabolism is a sign of health and vitality."

Money Well Spent

In Shenyang, at least, the rationale for building a metro is clear enough. Japanese occupiers in World War Two had planned a four-line metro system when the city was home to just over 1 million people.

Nearly 70 years on, the population has grown to about 8 million. Cars clog potholed streets from dawn to dusk, taxis double up on passengers during rush hour and buses are standing-room only.

"People here have no experience of metros, so they don't really know what it will do for the city. But I'm very excited. I think it will be a big help," said Sun Nan, a fast-talking real estate agent in his 20s.

Super-charged Chinese growth has boosted government coffers, providing it with plenty of firepower for investment. The budget deficit was just 2.2 percent of gross domestic product last year, even with the burst of infrastructure spending.

Still, some investors fret that China's local governments are taking on too much debt. Zhang, the metro official in Shenyang, did not beat around the bush.

"The key challenge for us is financing. It's no problem getting bank loans, but you can't rely on that alone because of interest charges. So there is fiscal pressure, and we are not a rich city," he said.

The first phase of Shenyang's metro will span 50 kms at a cost of 20 billion yuan ($2.9 billion). Based on that average, the city's planned 400 km system--longer than New York's--will cost 160 billion yuan. The expense will be spread out over decades so that the government need put only 5 percent of its annual municipal budget towards its construction, Zhang said.

Return On

Investment

Calculating the direct return on all of this investment is something of a mug's game. Zhang noted a study by Chinese researchers that argued that every 100 million yuan spent on metro building fuelled a 236 million yuan rise in total economic output, though he waved his hand at the precision of such a claim. As the city's complexion changes, so will its economy, bringing unanticipated costs and benefits.

Niu Ge, an old man selling tobacco in a run-down shop next to land zoned for a gleaming glass metro station, knows this uncertainty well. "I plan to expand when it opens. I'll set up a cigarette stand outside of the station," he said. "My biggest concern is that the government may want to relocate us."

On the surface, the pace of Chinese infrastructure investment will slow dramatically this year. The central government has actually budgeted for a 2.7 percent fall in spending on transport, compared with a 38.6 percent rise last year.

But this is likely to be transitory, a reflection of where China stands in the current economic cycle: after flooding the economy with cash to drive it through the global downturn, Beijing is now tightening its belt.

From a structural perspective, China's investment in infrastructure will remain strong for decades. The government has set its sights on a world-leading network of roads, railways and airports and has already set in motion a multitude of big-ticket projects.

"It will take us another 30 years at least to complete the metro in Shenyang," Zhang, 58, said with a chuckle. "Not only will I have retired, I will be dead by the time it is done."