Monday, January 09, 2017

Rethinking high-speed rail in China

From Adam Minter on Bloomberg (Just Say No to High-Speed Rail):

...The original case for high-speed rail in China was strong. In the mid-1990s, the country was considerably less developed than today; the average speed on Chinese railways in 1996 was 37 miles per hour, thanks to outdated technologies and overcrowding on too few tracks.

At the same time, the government faced far fewer obstacles to building high-speed lines than countries such as the U.S. do. Labor costs were low and acquiring land wasn’t difficult. (Eminent domain isn't much of an issue when the government owns all the land)...

Even with these advantages, however, the costs have been considerable. In May, state-owned China Railway Corporation, the operator of China's rail network, reported that its debt had grown 10.4 percent in the past year and now exceeded $600 billion; in 2014, roughly two-thirds of that debt was related to high-speed rail construction. That’s more than the total public debt of Greece. The company runs only one profitable line---the massively traveled Beijing-Shanghai corridor (emphasis added).

Costs are set to rise further. Now that most heavily trafficked areas are served by high-speed lines, construction is expanding to China’s less-populated and less-developed western regions, in part as a de facto fiscal stimulus. The government is building lines over greater distances and across more difficult geographies. Few can hope to earn back the investment.

Doubts about the wisdom of these projects are rising. As far back as 2010, prominent voices in China had warned that binge spending on high-speed rail could lead to a debt crisis, and that the same benefits could be achieved with conventionally built lines that cost about one-third as much. 

Traditionally ignored, concerns about rail-related debt are now gaining weight, leading to prominent calls to break up the massive China Railway Corporation. So far, however, the government has yet to take the natural step and cancel major high-speed projects.

Where the backlash is being felt most acutely is abroad. From the earliest days of high-speed rail, China has hoped to export its technology. Those ambitions have run into major difficulties. As Caixin, China's most respected business magazine, reported last week, many of the countries to which China had hoped to sell high-speed technology are now scaling back their plans "due to huge building and operating costs."

Thailand has opted to shorten a planned, Chinese-built high-speed rail line over financing questions. Indonesia agreed to another Chinese project only after China agreed to build the line without Indonesian government money or loan guarantees. Mexico cancelled a Chinese high-speed rail project outright, ultimately citing budget constraints.

Xpress West, the private company that hoped to build a high-speed line between Las Vegas and Los Angeles, recently terminated its agreement with its Chinese partner. According to Caixin, finances were the problem, and the cancellation---along with other setbacks---is causing China's rail barons to rethink their overseas expansion plans.

What Chinese leaders need to admit is that no other country is quite like China. California doesn’t have the same cost advantages. Indonesia lacks a government that can run up massive, unaccountable debts. Thailand rightly believes that slow trains are just as good as fast ones. 

Suggestions that rail has environmental benefits over other forms of transportation have merit only if the trains are running full. As China's own example shows, many are not and cannot thanks to low population densities along their routes.

This doesn’t mean high-speed rail is doomed outside of China. But if the world's leading builder is having trouble making a business case for its systems, even with the benefit of government subsidies, that case probably isn't very strong. 

What impressed visitors see now in China may not be the future after all.

Rob's comment:
In the unlikely event that the system is even built in California, Proposition 1A prohibits any "government subsidies" to operate the system: See pages 8 and 9.

The NY Times saw problems for China coming six years agoChina Rail Chief’s Firing Hints at Trouble.

The NY Times in 2009:

“High-speed rail is good for society and it’s good for the environment, but it’s not a profitable business,” said Mr. Barrón of the International Union of Railways. He reckons that only two routes in the world — between Tokyo and Osaka, and between Paris and Lyon, France — have broken even.

The push for high-speed rail in the US by President Obama is one of his few big mistakes. Even capitalists question the idea. From the Investor's Business Daily way back in 2011. And T. Bone Pickens in 2013. 

Thanks to the Antiplanner.

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