Header photo source: Xinhua.
Addressing ordered ranks of construction workers, government officials and cadres in traditional Tibetan dress standing at attention in a clearing ringed by misty Himalayan mountain peaks, Chinese premier Li Qiang hailed the official launch of the country’s “project of the century,” an ambitious RMB 1.2 trillion (USD 168 billion) hydropower project to be built at the site of the world’s deepest canyon.
“The hydropower project will be massive in scale, long in duration and far-reaching in impact,” said Li, dressed for the groundbreaking in a navy blue windbreaker and matching pants. “It should be built into a landmark project emblematic of the new era.”
As he wrapped up, state television showed a row of blue excavators moving in sync to begin digging at the remote Tibetan work site along the Yarlung Tsangpo River. Some analysts believe construction may have actually started a year or two earlier, with the official announcement held for maximal impact.
Indeed, in the view of a number of observers, the July launch event could hardly have been better timed to boost economic sentiment. China has been struggling to overcome the implosion of its property market and to balance pressures from US tariffs. A swelling surplus of manufactured products, caused in part by slumping domestic demand, is fueling deflation as well as tensions with foreign nations swamped with cheap imports. Growing corporate caution is holding back job growth, which in turn is weighing on consumer confidence.
Such concerns will be on the minds of Chinese government committee members when they convene to hammer out a new national five-year plan to run through 2030. The plan, China’s 15th, is expected to prioritize self-reliance and green development, themes that are embodied by the Yarlung Tsangpo hydropower project, which stands to reduce the country’s need to import and burn fossil fuels.
“The international environment is becoming increasingly volatile,” Li Daokui, a member of the monetary policy committee at the People’s Bank of China, said in a video posted to a Tsinghua University alumni YouTube channel in August.
Li said the Yarlung Tsangpo project and other infrastructure initiatives in western China reflect “a strategic national goal … [to] transform the west from a lagging area into a new economic heartland, to clear bottlenecks in the domestic economic cycle and to further boost internal demand.”
Many observers are comparing the project’s potential economic significance to that of the Three Gorges Dam project, the world’s largest hydropower plant by capacity, built in the 1990s and early 2000s, partly amid the Asian financial crisis.
In terms of capacity and cost, Yarlung Tsangpo, sometimes written as Yarlung Zangbo, will be three to four times larger than the Three Gorges, but China’s economy is also far bigger than it was back then. Consequently, some analysts and economists question whether even an undertaking so massive will be able to channel enough force to revive China’s growth momentum and whether Beijing will come around to accepting that infrastructure spending no longer has its previous potency.
To be sure, the Yarlung Tsangpo project carries more than economic significance. With power demand climbing in China as elsewhere due to the rise of artificial intelligence services, its output could find eager takers in more populated parts of the country. The project could also give China strategic leverage over India and Bangladesh, as both rely heavily on the waters of the Brahmaputra, as the river is called within their borders.
In any case, the magnitude of the project is tremendous. Officials project that it will generate 300 billion kilowatt-hours of electricity annually, equivalent to 20% of the country’s current residential power consumption. A recruitment notice in July estimated more than 100,000 people would be hired for its construction and operation. Building it is expected to require around 40 million metric tons of cement and at least four million metric tons of steel.
These materials will not be used to construct a reservoir or big traditional dam like that of the Three Gorges. Instead, the supplies will be used primarily for building several lengthy bypass tunnels under the Himalayas along with smaller dams to divert flows into them. This network will cascade part of the Yarlung Tsangpo River’s flow downward through power turbines before the water rejoins the looping river at a lower altitude.
Construction in this difficult, remote environment will require advanced tunnel boring technologies. Sending the hydropower project’s output onward will utilize China’s expertise with ultra high voltage transmission networks.
Investors eyeing the upcoming flow of contracts and orders flocked to buy the shares of Chinese cement producers, power equipment makers and engineering companies in the wake of Li’s groundbreaking, playing into an unexpected stock market rally that began in April.
Amber Zhang, a data manager at Chinese market research company BigOne Lab, linked the euphoria in a blog post to how the Three Gorges Dam “became more than an engineering marvel” but also “a potent symbol of national pride and a harbinger of an era of unprecedented prosperity.”
“This powerful association has created a form of national reminiscence, a collective hope that the Yarlung Tsangpo project, being even larger and more ambitious, could similarly kickstart a new ‘supercycle’ of growth,” Zhang wrote.
Referring to the project as a “strategic pivot” at a “critical juncture,” Hao Hong, managing partner and chief investment officer of Hong Kong-based hedge fund group Lotus Asset Management, compared Yarlung Tsangpo to the Hoover Dam in the western US That project’s construction in the early 1930s proved a valuable source of jobs and demand amid the Great Depression.
“Beijing’s focus has shifted from risk management to growth stimulation, moving from tolerating deflation to reflating the economy,” Hong wrote in a client note last month. “The massive [Yarlung Tsangpo] project announced in July clearly signals a policy shift.”
He earlier predicted that the project would help push up prices for cement, steel, and copper, noting that rising commodity prices in China have usually “heralded improving household willingness to spend more in the coming months.
“We expect such a correlation will persist, as rising prices should boost producers’ margins and alleviate consumers’ deflationary concerns,” Hong wrote. “So, the producers will hire more and provide more jobs, consumers will earn more and spend more. Eventually, if everything falls into place, a virtuous price and growth cycle should rejuvenate,” he added, suggesting the project’s impact could amount to three to four times its RMB 1.2 trillion price tag.
Economists who have tried to pin down the project’s potential impact more finely, such as Lu Ting of Nomura, Citigroup’s Xiangrong Yu, and Leah Fahy of Capital Economics, forecast that Yarlung Tsangpo will add about 0.1% to China’s annual gross domestic product in the project’s early stages.
For some, that just is not enough to make Yarlung Tsangpo really matter for the country’s economy.
“It is clearly not a game changer for China’s overall growth,” said Homin Lee, a senior macro strategist at Swiss private bank Lombard Odier. Added Larry Hu, China economist at Macquarie Group, “We don’t share the view that the construction of a mega dam on the Yarlung Zangbo River is another step toward reflation.”
Some analysts, such as Jeff Zhang of Morningstar, even question whether the commodity requirements of the project will be meaningful given the huge scale of the Chinese market.
“At first sight, an estimated four to six million tons of steel and 30–50 million tons of cement are huge volumes, but they are still not sufficient to make a difference in the markets, in particular not over an estimated ten-year construction period,” wrote Carsten Menke, head of next generation research at Swiss private bank Julius Baer, in a research note.
For such critics, Yarlung Tsangpo is actually a sign of Beijing’s inability to break from its tried-and-true formula of turning to infrastructure investment to stimulate the economy during times of stress, despite years of urging by economists for the authorities to look to consumers for growth.
“The Yarlung Tsangpo megadam project thus calls China’s principal ability to stimulate the economy via infrastructure investments into question, as neither from an economic point of view nor from a construction materials point of view is it big enough to make a major difference,” Menke said. “And if such a project cannot make a difference anymore, which project can?”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.