700 billion USD to be invested on China's railway during 2009-2012

Discussion in 'China' started by badguy2000, Mar 21, 2010.

  1. badguy2000

    badguy2000 Respected Member Senior Member

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    I am glad to know that the 700 billion USD is to be spent on CHina's infrastructures ,instead of weapons.

     
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  3. badguy2000

    badguy2000 Respected Member Senior Member

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    anyhow, it is wise way to invest on economy development ,instead of weapons.

    Morever,to invest heavily on infrastructure is also a indirectly way to reinforce national defence ,becasue in a long term a powerful defence has to be based on a powerful economy.


    BTW, CHina's yearly defence expenditure is only about 76 billion USD (2010).

    so, the total defence expenditure during 2009-2012 should be about 250 billion USD,if growth of defence expenditure is considered.

    compared with 700 billion USD investment on railways, China's defence expenditure is quite limited.
    [​IMG]
     
    Last edited: Mar 21, 2010
  4. gogbot

    gogbot Regular Member

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    I realise this project has multiple benefits.

    But i just cant understand how the Railway ministry got clearance to go ahead with near 1 trillion dollar project.

    How long is it going to take for the whole project to be profitable.

    How long is it going to be before the railway ministry has managed to move enough freight and people to pay for this ?

    no criticism.

    i just want some numbers
     
  5. Vinod2070

    Vinod2070 मध्यस्थ Stars and Ambassadors

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    ^^ That is one benefit of a one party rule. You don't need to have a real economic justification for making huge commitments like this.

    While building infrastructure is good, it appears that in China there have been several excesses in this area. Too much infrastructure has been created where there are no users for it.

    I am not sure if this decision is one of that sort. It may be a visionary decision and supply may create its own demand or it may turn out to be before its time.
     
  6. badguy2000

    badguy2000 Respected Member Senior Member

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    1.I am a creditrisk supervisor in a CHinese bank. Judging from my experience, Bank loans for infrastructures such as expressway and railways are always the best bank assets and has little risk.
    Usually, Chinese banks provide a part of long term loans (usually 20-30 years) for those infrastructure projects,with the right to collect tolls for a road the as mortgage. As long as CHina's economy grow, the yearly toll for a road or railway is enough to pay bank loans and interest.



    2.Besides,as base section of national economy ,"profitable" is not the duty of infrastructures such as expressways and railways.

    their duty is to provide the convenience and smoothness for industry activties.
     
  7. badguy2000

    badguy2000 Respected Member Senior Member

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    infrastructures are the base of industry activties. so it is reasonable that infrastructures development are properly ahead of real demand.

    when thousands of expressways were developed in 1990s-early 2000,same questions were raised in CHina too.

    However ,nobody in CHina questions it again,because the expessway proves that "proper ahead" is right.

    wherever the expressway winds ,the industry activties along the expressways get active soon
     
    Last edited: Mar 21, 2010
  8. Rage

    Rage DFI TEAM Stars and Ambassadors

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    There is clearly a fault with your understanding and articulation of this article.


    The article indicates:


    which means that by 2009, total, empirical investment in China's railways had exceeded 292 billion $'s. By the end of 2012, that total investment is expected to exceed 5 trillion Yuan (730 billion USD), which means that the differential, [730 - 292 = $ 438 billion] is what will be invested in China in the 2009-12 period.
     
    Last edited: Mar 21, 2010
  9. badguy2000

    badguy2000 Respected Member Senior Member

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    it is means in the sole 2009, the yearly investment on railway is 292 billion USD.
    During 2010-2019, 438 billion(730-292) more are expected to be invested on railway.

    So,during 2009-2012, 730 billion altegother are to poured on railways.

    According to my observation, the investment on railway in the coming several years are more heavier than 2009.
    If in the sole 2009,292 billion USD were invested on railway,then the real investment on railway will obviously easily surpass 730 bilion USD.
     
    Last edited: Mar 21, 2010
  10. Rage

    Rage DFI TEAM Stars and Ambassadors

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    You're understating my reading of the English?

    It means, that upto the first quarter of 2009, total investments in the railways had exceeded $ 292 billion ("by the end of the first quarter 2009, the approved investment amounts had exceeded 2 trillion Yuan"). Between the erst of the second quarter 2009, and the last quarter of 2012, total investments accruing from proposed additional investments will exceed $730 billion ["Medium and Long Term Railway Network Plans (adjusted in 2008)...with the total investment breaking through 5 trillion Yuan"] meaning that rail investment during the 2009-2012 period will be $ 438 billion, the differential.
     
    Last edited: Mar 22, 2010
  11. nimo_cn

    nimo_cn Senior Member Senior Member

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    Could you define the term of profitable ?
    If you mean how long it will take for the Railway Ministry to make enough money by selling train tickets to pay back the investment, then i have to admit it will take at least 30-50 years or longer because such direct profit will be limited if compared with the huge investment in the short run.

    But railway industry is a special sector, which as well as other infrastructures is not meant for making money directly, on the contrary is meant for assisting the development of other sectors. So in the long turn, the indirect benefit it brings on will be enormous if compared with the direct profit it can get by selling train tickets.

    Put economic benefits aside, just the time cost it can save will be very considerable.
     
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  12. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    By being profitable he means the break-even point and you have pretty well comprehended it, but can you show us the figures as to how have you arrived to the figure of 30-50years for even the expressway projects can easily take around 20-30years to make meet the break-even point, at times the timeline runs much longer and in here the ccp is doling out out-right subsidies on the ticket price and there are certain projects where the break-even is expected to be well to the tune of over 200years!
     
  13. badguy2000

    badguy2000 Respected Member Senior Member

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    guy, expressway projects in china are very profitable.....
     
  14. no smoking

    no smoking Senior Member Senior Member

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    In which area, there are several excesses on infrastructure?
     
  15. nimo_cn

    nimo_cn Senior Member Senior Member

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    As BG has pointed out "profitable" is not the duty of infrastructures such as expressways and railways.

    So i believe when the government made the decision to build HSP railway, weather the railway will be profitable is less considered by the policy makers. Hence, the authority hasn't disclosed any specific statistics regarding the break-even point issue.

    As far as i know, the Railway ministry only mentioned the approximate timeline when the investment will be recovered. Take the highspeed railway connecting Wuhan and GuangZhou for example, the ministry says it will take them 14 years to meet the break-even point.

    So the figure of 30-50 years is just a guess, i dont have much evidence to back up it. The information i want to deliver here by mentioning that figure is that it will take a long time for the railway ministry to meet the break even point.

    But i want to emphasis again, the success of this highspeed railway project doesn't lie in its direct short-term profitability. The purpose of such project is to strengthen the connection among different regions, to accelerate the flow of human resources and capital, to cut the economic cost and time cost of logistics, ...eventually to boost the development of the economy.

    So i think what we really should be concerned is if these goals will be fullfilled, if this project will bring on the changes we expect.
     
    Last edited: Mar 22, 2010
  16. gogbot

    gogbot Regular Member

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    The whole project is done using money from public finance so essentially the wealth of the people republic is being poured into this nearly 1 trillion dollar project.
    Sp the people of China are paying for this project.

    As a result, in most countries when you have high profile and hugely expensive projects. The government has to justify, why it spending 700 billion dollars on HSR over the next few years.

    How long is it going to take before the money spent on this project equates to financial benefit of china, When will the government earn back the money spent. Public finance is a balance of payments not a public cheque book.

    you invested 700 billion, how long is it going to take for that investment to mature and that 700 billion is earned back. Not just by the government but the people of China themselves.

    Now you said 30-50 years. well that's a long way off, HSR could be made redundant by then.
     
  17. badguy2000

    badguy2000 Respected Member Senior Member

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    Generally speaking, CHina's expressway net is a unprecedented success,whether measued by "national interest" or "profitable".

    Bank loans for expressways are best assets of Chinese banks,which toll provide enough long-term stable cash income for banks loans.

    the success of Chinese expressway net provide a mature operation mod for CHina's highspeed railway.
     
  18. badguy2000

    badguy2000 Respected Member Senior Member

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    it is the advantage of "one party regime" that policy-decisiton is made on long-term national interest,instead of short-term interest such as vote or election.
     
  19. gogbot

    gogbot Regular Member

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    What is this long term national interest in HSR.

    700 biillion dollars a huge chunk of China's budget being spent soon after the economic recession, on infrastructure.

    It shows much more short term gains then long term.

    If it was for long term interests , why was it the project was not spread out longer.

    The question i asked was , what is the economic justification of viability of this huge project.

    One party or not. even China has a fiscal policy. Its investments have to viable.
     
  20. amoy

    amoy Senior Member Senior Member

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    I believe below quotation well answers your question

    In the end the 'economic return' of HSR will be achieved from other sectors through efficiency and productivity gained from HSR which justifies the investment.

    Just look around (perhaps India is different) here in China many public utilities are subsidized (by taxpayers in the end), like urban water supply, city bus, metros, public hospitals that can hardly sustain themselves with profit as it serves the masses at all levels of income..... China is not the only country doing so. As far as I know, for example, most of metros worldwide is not profitable except Hong Kong, which earns its way through property development along the metro lines.

    In my opinion HSR is among many things that have to count on fiscal support although it may break even someday in a certain span of time . Additionally HSR, somehow is one of ways to redistribute wealth...in favour of those who may have been unable to afford......(that may be one of so-called 'national interests'). When paying taxes (e.g. for income, property) we pay different, but we enjoy the public service at the same price e.g. rmb1 per city bus trip.... the same is true of HSR.
     
    Last edited: Mar 22, 2010
  21. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    Nimo_cn,

    I am certainly not disputing the overall benefit this project will bring about to the industry as a whole which can be visualized and if calculated from there the profitability (per se) can as well be seen, but through different aspects as you and ohimalaya are trying to put across. One can see to just what huge extent this will push the exports of the country once the interlinking of HSR happens with rest of the world especially with EU, CAR, Russia, ASEAN, India and probably Africa someday, something that the prc will eventually eye for and the tremendous cost benefits it will bring about to the already cheap Chinese product line, with delivery at some phenomenal speed and all this will give some terrific competitive edge to products MiC.

    I was just interested in understanding the viability of this project stand alone, mind you even after break-even point the losses can and do happen if the operating/fluctuating costs are not curtailed. Now that you say the concerned minister says 14years for the BE to be achieved then that has to be exceptional since I have never come across a business model related to infrastructure and that too which focuses in just one specific area and which is quite high-end (in here the HSR) can do it at such break neck speed. If you guys can pull if off as claimed by the minister then this project is sure to resonate in all the top global business schools as a classic case study.

    Anyways all the best for it.
     

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