Keynes with Chinese characteristics.*
From the Wall Street Journal via India's Mint, November 20th/21st:
The train system is one of the biggest public works in history, and it’s becoming a giant money pit
On his first day in office, leader Xi Jinping inherited an ambitious road map to build 10,000 miles of high-speed rail to link China’s biggest cities. He took those plans and supersized them.
What has emerged 12 years later is one of the biggest public works in history, soon to exceed 30,000 miles of high-speed rail. For many of its citizens, the vast network is one of the clearest signs of China’s progress, especially compared with the U.S., which has struggled to get any high-speed rail going. Lest they forget whom to thank, its top-of-the-line trains are named “Rejuvenation," after Xi’s promise to restore China’s national power.
The build-out encapsulates Xi’s vision for China’s future, with a focus on advanced technology driven by government spending. Chinese leaders once prioritized lifting individual wealth to keep people happy. Xi’s colossal investment in trains is part of a return to the Communist Party’s roots by emphasizing collective benefits from the state.
The plan sticks to a well-worn economic model built on maintaining growth through infrastructure spending—even though China already has much of what it needs.
It’s becoming a giant money pit. China has spent more than $500 billion on new tracks, trains and stations in the past five years, while the country’s national railway operator, China State Railway Group, is nearing $1 trillion of debt and other liabilities. Just keeping up with its debt requires $25 billion annually.
While passenger numbers have rebounded following the lifting of Covid-19 restrictions, raising ridership will be especially challenging in the years to come as China’s population is projected to shrink by around 200 million people in the next three decades. Some of the newest lines are in effect duplicating older ones.
The expansion now stretches into quieter corners of inland China, such as central Sichuan province’s Fushun County, where the population of 700,000 mostly rural residents has been shrinking for years. It got its first high-speed trains in 2021, and there are now at least 12 high-speed rail stations within a 40-mile radius in the county and its surrounding areas.
On a recent afternoon, Fushun Station itself was practically deserted, with around 20 travelers milling about in a cavernous waiting room with seats for 1,000.
Another even newer station a few miles up the road was similarly empty. In the plaza outside, 50-year-old Liu Chuanfu was selling chilled rice cakes for 40 cents a bowl.
Liu roamed China for decades as a construction worker, including on a high-speed rail station in a wealthy coastal city. As the economy sagged, Liu’s pay fell 40%. He recently moved back home to Sichuan, where his expenses are cheaper.
Like many other Chinese, Liu praised the high-speed rail system overall for its convenience. Then he questioned how much more the country should build.
“We’re already saturated," he said.
Growth story
China’s nearly 30,000 miles of high-speed rail is already more than enough to circle the globe. China State Railway envisions adding nearly 15,000 miles more by 2035, costing hundreds of billions of dollars.Such massive spending is a feature of China’s growth story, with investment making up about 42% of its gross domestic product, compared with 26% globally.
“If you want to get rich, first build the roads," Xi has said to justify spending on transportation, including high-speed rail—no matter the cost.
The U.S., by contrast, has only very limited service on the East Coast that could plausibly be considered high-speed rail. A 500-mile line from Los Angeles to San Francisco under construction has grappled with costs spiraling to more than $100 billion and a still-uncertain completion date. While definitions vary, high-speed trains typically run anywhere from 125 to more than 220 miles an hour.
The challenge for China is that high-speed trains are far more costly than alternatives, such as traditional trains or buses, which many economists believe are sufficient for much of the country.
High-speed rail makes the most financial sense in densely populated areas where travelers will pay a premium to reach their destination more quickly.
The line connecting Shanghai and the tech hub of Hangzhou, home to Alibaba, drew an average of around 100,000 passenger trips every day during its first decade between 2010 and 2020, according to state media.
A similarly sized section running through Fushun County has reported only about 9,000 daily trips on average since opening in 2021, though that included a period until late 2022 when China was under strict Covid-19 controls.
All told, China State Railway’s liabilities grew to a record of about $860 billion as of September. The total debt tied to China’s rail expansion is even higher, since cash-strapped local governments are being required to bear many of the costs for new projects. Over time, maintenance costs will add up.
There’s little risk the railway operator will default, given its strong backing by China’s government. And proponents of China’s build-out say the fast trains create positive knock-on effects, such as cutting pollution from gas-powered cars, shortening travel times for business trips and promoting urbanization.
Yet as the government pursues trophy projects that symbolize its status as a leading power, at the individual level, many citizens are feeling poorer and their futures less secure. The rail investments also divert resources away from initiatives such as building a stronger social safety net that economists say China needs to help its aging population and increase domestic consumption over time.
Zhao Jian, a scholar at Beijing Jiaotong University who’s critical of the high-speed rail build-out, has argued in commentaries that China is turning a blind eye to the system’s financial perils. He has said the country would have been better off only building a few thousand miles of high-speed rail in its most densely populated areas. Hundreds of billions of dollars could have instead been invested in traditional railways that can also handle freight, as well as on more research in areas like advanced chips.
Spending on trains could also come at the expense of efforts to lift economic opportunities for Chinese people over the long run, with hundreds of millions of people across the country lacking in education.
“Just do the cost-benefit analysis," said Scott Rozelle, a Stanford University economist who studies Chinese development.
Such efforts take years to bear fruit, while building trains offers an immediate boost to an economy that has struggled to keep people employed, economists said.
State media focuses on new trains as feats of Chinese engineering that create well-paying jobs. At work sites as high as 14,000 feet above sea level, one of China’s priciest rail projects is taking shape, linking Tibet’s capital of Lhasa with the central city of Chengdu in Sichuan, at a cost of more than $50 billion.
“Our village has over 30 people working for their rice at the railways," a janitor at one station in Tibet along the new line told state media.
While not technically high-speed rail, the trains would run at around 100 miles an hour over the 13-hour journey. That’s still far longer than the 2½ hours it takes to fly from Chengdu to Lhasa, with plentiful daily options. Flights can go for as little as $50 one way, making it tough for the trains to compete.
Cheap seats
China says it can make its railways more economically viable. Over the past decade, Beijing pursued a series of reforms to make its railroads operate more like businesses, abolishing the government departments that had long run the nation’s trains and then launching China State Railway in 2019.A drive to slash overhead helped China State Railway turn a roughly $460 million profit last year after losing close to $25 billion from 2020 to 2022 during the pandemic. Its results last year were boosted by more than $1 billion in “other income," a line item in China that typically includes state subsidies.
Some of its two dozen major operating units are facing serious difficulties. Its biggest subsidiary, based in Sichuan, lost $1 billion in 2023 as it expanded in rural areas and smaller cities inland....
....MUCH MORE
*See Keynes,The General Theory of Employment, Interest and Money, Book III, Chapter 10:
VI - If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.
See:
Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era
—via In Their Own Words: Translations from Chinese source documents
China Aerospace Studies Institute Translation published Fall 2023 (444 page PDF)
444 is extremely unlucky in Chinese numerology. Extremely.
Regarding bottles of cash in played-out coal mines, China already builds bridges that fall down,
a type of uber-Keynesian stimulus, which, as M. Bastiat pointed out, is
great for nominal GDP, not so much for actually building national
wealth.
Possibly also of interest:
"First two volumes of Xi Jinping's selected works published" Huzzah!
****
I'm waiting for the Special Collector's Edition but in the meantime will be checking for updates to this:
"China’s most popular app is a propaganda tool teaching Xi Jinping Thought"
Which had been preceded by 2018's ""China to require patriotism education for intellectuals " (and the rise of "Xi thought")"
What was old is new again. I read about this, back in the day they called it the Great Proletarian Cultural Revolution or something.
And followed by 2021's "Chinese Cars to Teach Occupants About Xi Jinping Thought"
Possibly related:
Ford Patents Tech to Annoy Drivers With In-Car Advertisements
