Chinese Growth Runs Off the Rails
Forget that grisly accident for the moment and ask if China has built a high-speed train to nowhere. Looks like it:
The funding of this grand ambition is beginning to look increasingly shaky too. Financially, the project has already effectively broken the Ministry of Railways. At the last count, the ministry was nearly 2 trillion yuan (£200bn) in debt and clocking up losses at the rate of about £400m a quarter. On any Western definition, the ministry is completely bust. To meet the plan, another 2.8 trillion yuan has to be found in the next three and half years. Where’s the money going to come from?
In recent debt issues, the railway has had to pay way above the going rate of interest, despite the fact that its bonds are implicitly and in some cases explicitly underwritten by the state. Of equal concern is that the newly opened links have failed to achieve anywhere near expected traffic levels. In the West, they would be dubbed a massive white elephant.
Actually, we call it “winning the future.”
And when China goes in the tank, say hello to a world wide depression. The next few years are just going to be oh so much fun.
But…but… isn’t China to big to fall???
What if China goes in the tank and stops buying goods from us… oh wait, they don’t. Never mind. They’ve already stopped buying our debt. The next step will be the elimination of the artificially low manufacturing processes which will ship jobs back home (or to other countries) and (the worst part) rip the mask off of the inflation they’ve been hiding by keeping their currency down.
In other news, Thomas Friedman called the Chinese and yelled “Why the !#%$ did you stop? I was sooooo close!”
Look. Centrally planned economies have never worked and it’s not going to work here. The country is to one degree or another a house of cards. Banks have been used to finance factories who’s sole purpose is to keep people from moving to the cities. Infrastructure projects such as this are specious uses of public funds intended more to promote the glory of the party, than they are for the well being of the people. We’ve seen this before, and we know how it ends.
Badly.
The fact that Tom Friedman is agog with wide eyed admiration is the biggest glaring sell signal in the history of the world.
I thought we in the US would actually call it AMTRAK.
Just got back from two weeks in Shanghai. For fun, we rode the 300+ kph maglev train that runs from the airport to a pointless subway station. The entire train had 30 people on it and 10 of them were from our group. The thing could probably hold 500+ people. I read the thing cost over $1 billion to build. It goes about 30-40 km.
China is building all this stuff just for the sake of building it. They think they’ll eventually need all these giant airports, trains, and vacant apartment buildings. The trouble is, by the time they do actually need it, all these things will have fallen apart and will need to be rebuilt.
…I.E. the ChiComs are not immune to “Trains To Nowhere” syndrome either. No big surprise there; state apparatus everywhere love monuments to their greatness (or tombstones…).