China?s Speeding Bullet-Train Program May Brake Economic Growth - Bloomberg.com
Dec. 22 (Bloomberg) -- Train C2019 covers the 120 kilometers between Beijing and Tianjin in 30 minutes, passing peasants in fields burning corn stalks and warrens of shacks occupied by people who aren’t sharing in China’s economic boom.
The line is part of China’s 2 trillion yuan ($292.9 billion) investment in a
nationwide high-speed passenger-rail network that may be too much train, too fast.
The
time savings that the new system delivers may not justify the cost, creating a potential drag on long-term growth, said Michael Pettis, former head of emerging markets at Bear Stearns Cos. The losers are Chinese consumers, who will have to wait for new health-care and old-age benefits while the government focuses on public-works spending, he said.
While the expanded service will be a “trophy” for China, the country “already has probably the best infrastructure in the world for its level of development,” said Pettis, now a finance professor at Peking University.
China accelerated its high-speed-rail development plan last year in the wake of the global financial crisis, saying it would increase the passenger network by a third to 16,000 kilometers (9,944 miles) by 2020.
Montreal-based Bombardier Inc., t
he world’s largest maker of passenger locomotives, and Munich-based Siemens AG are helping to build the system. Bombardier’s Chinese joint venture won a $4 billion contract in September to build 80 high-speed trains. Siemens, Europe’s largest engineering company, and Chinese partners received a 750 million-euro ($1.08 billion) order in March for 100 trains.
Most Expensive
The centerpiece of the service is a 1,318-kilometer line with 16 kilometers of tunnels that will cut the trip between Beijing and Shanghai to five hours from 10. Set to open by 2012, the 221 billion-yuan project currently employs 127,000 workers and is the most expensive engineering program in Chinese history, eclipsing the Yangtze River’s Three Gorges Dam, the world’s biggest hydroelectric project, which cost 203.9 billion yuan.
Spending on railroads is growing faster than on any other area of investment, rising 80.7 percent to 464.6 billion yuan in the first 11 months of the year from the same period in 2008, according to China’s National Bureau of Statistics.
Investment in fixed assets such as factories and the rail network accounted for more than 95 percent of China’s 7.7 percent growth in the first three quarters of 2009 and made up 45 percent of gross domestic product, which is higher than any major economy in history, according to Morgan Stanley Asia Chairman Stephen Roach.
‘Ridiculous, Unsustainable’
Without a surge in consumer spending and with export growth stalled, investment must rise even further to stoke growth, he said in a Dec. 18 Beijing speech.
“These are ridiculous, unsustainable numbers for any economy,” he said.
China may be hit with a slowdown next year as the impact of the investment-led expansion wears off and shipments to the U.S., the traditional external source of growth, fail to pick up, Roach said in an October report. He didn’t specify how much growth might slow.
Some economists say the high-speed network is symbolic of a stimulus program that places too much emphasis on infrastructure spending and not enough on raising living standards in a Communist country where the average urban worker made 28,898 yuan last year, a tenth of the $39,653 average wage in the U.S., according todata from the U.S. and Chinese governments.
Most Chinese rail travelers won’t pay the premium to ride on the fast trains, Zhao Jian, a professor of economics at Beijing Jiaotong University, said in a September interview on Chinese television.
Slower Train
A second-class one-way ticket for the half-hour Beijing- Tianjin trip costs 58 yuan, about three-quarters of the workers’ average daily pay. A so-called hard-seat ticket on a slower train, which covers the distance in two hours, sells for 11 yuan.
Passenger reluctance means revenue from the high-speed lines won’t be enough to service the debt if railway expansion continues at its current pace, Zhao said in the TV interview. China’s Ministry of Railways has 383 billion yuan in bonds outstanding.
“If America had its subprime crisis, in China we have a railroad-debt crisis, or you could call it a government-debt crisis,” Zhao said in the TV interview.
China’s railway ministry says the new system makes economic sense: A two-track bullet train can transport 160 million people a year, compared with 80 million for a four-lane highway, it said in a Dec. 21 faxed statement.
“The safest, fastest, most economical, most environmentally friendly, most reliable mode of transport is high-speed rail,” the ministry said.
Tribute to Mao
The fast trains leave from Beijing South railway station, a new glass and steel structure that looks like a flying saucer. The slower trains depart from the half-century-old Beijing Station, where the clock tower marks the hour by playing “The East is Red,” a tribute to Mao Zedong that was popular during China’s 1966-76 Cultural Revolution.
Sitting on the stiff green benches in car 13 of train 4401, Yuan Hong, 40, says she doesn’t mind the old line’s extra 90 minutes.
“It’s a huge price difference,” says Yuan, who works as a cleaner in Tianjin. “This is the train the common people take.”
