Urbanization Offers US$1 Tln in Savings

China should try and tap savings from infrastructure construction as the country continues to urbanize, according to McKinsey & Co, adding that the government should use bonds and project financing to fund development.

The firm said there are opportunities to save US$1 trillion annually worldwide on infrastructure from 2013 to 2030. That compared with the US$2.7 trillion needed for investment per year, excluding in telecom.

The savings are possible from better investment decisions, streamlined approvals and advanced contract management as well as increased asset utilization on existing projects.

In an interview Herbert Pohl, a McKinsey director, said that countries with a higher share of new investments, including China, should be able to reap the savings benefits on new infrastructure building than countries which have to spend more on higher share of maintenance and operations of older infrastructure.

"We believe you can do that with 40 percent less of the capital that is being deployed right now," Pohl said.

Another McKinsey director and a co-chair of the consultancy's Urban China Initiative, Jonathan Woetzel, said the country, the world's largest investor in infrastructure, should expand its under-developed project financing sector and municipal bond market to help finance the construction of new highways and high-speed rail.

China has so far relied on state-directed bank lending to fund infrastructure construction.