Friday, April 29, 2011

If China gets High-Speed Rail wrong, why would we get it right?

Here are two problems.  They co-exist in China.  Wouldn't you think that when you see what a government does that turns out to be a huge mistake, it's important that we should learn from it, and maybe not repeat it?  

Put simply, China put all of its eggs into the high-speed rail basket, and it's not working out.  Indeed, it's become a multi-billion dollar disaster.  Meanwhile, China's bread-and-butter economic engine has been its manufacturing, and the weak link in that chain has been ground transportation of goods from the factories to shipping ports.  They use trucks.  The US hauls coal by freight rail; cheap and efficient.  The Chinese use trucks.

Where are the smart people there who might have said, wait, let's not put all our eggs in the passenger rail basket.  We should also consider freight rail as an alternative to our total reliance on the shipment of goods by truck.  For whatever reason, that obviously hasn't happened.

The US today has the world's best freight rail operations and capacity.  We had a great deal more passenger rail at one time than we do today.  Might someone not have looked at this historical phenonemon and asked for the underlying reasons and causes?

Our question for today is, of course, are we determined to make the same costly mistake that China has been making, in the US?

Oh, and did I mention that traffic gridlock on the highways in and around China's major coastal cities is worse than ever?  And, that's a country that built high-speed rail to, among other things, prevent that problem.  

Isn't the elimination of traffic congestion one of the big promises brought to us by high-speed rail here in the US, and especially in California? What if it doesn't work?  What if, like in China, our HSR trains run empty? Shouldn't we be asking these questions now, not ten years from now?

Anyhow, here are the two articles that should be read in concert.
High-Speed Derail

Posted 04/28/2011 07:05 PM ET
Transportation: China's technology of the future has become a boondoggle of the present, piling up debt and resulting in the arrest of the minister of railways. Maybe it's that last part we should be copying.

It was supposed to be the modern equivalent of the Great Wall, a web of high-speed rail lines whipping travelers and commuters at speeds of over 200 miles an hour. It was to be a model we were told we needed to emulate to stay technologically competitive.

The endeavor was part of China's stimulus package in response to the 2008 global financial crisis. It would create jobs and stimulate economic growth. President Obama was so impressed he included $8 billion in his 1,000-page stimulus bill to jump-start an American counterpart.

Our silver-tongued vice president, Joe Biden, recently touted the president's new $53 billion high-speed rail package with the admonition: "If we don't seize this future, how will America ever have the opportunity to lead the world in the 21st century?" Well, we could return to the moon or go to Mars, but we'll have to settle for a fast train from St. Louis to Chicago.

The socialist-progressive Center for American Progress, always eager to make the trains run on time, trumpeted: "Today, it is China that is leading the world in a key next-generation transportation technology: high-speed rail. ... China already boasts a rail network that, including both standard and high-speed rail, is more than 53,000 miles long."

Today the reality is somewhat different. In February, Liu Zhijun, minister of railways in the People's Republic of China, was arrested after investigations into cost overruns and poor performance of the ministry's showcase bullet trains, with a dash of corruption thrown in.

The modern marvel he oversaw has caused his ministry to run up some $276 billion in debt, roughly five times the amount that bankrupted General Motors. The money was mostly borrowed, ironically from the same Chinese banks that are financing our debt. And the trains aren't running safely or on time.

On April 13, the government announced train speeds would be reduced from a maximum 216 miles per hour to 186 as a result of concerns about safety, energy efficiency and affordability.

Of course, cost overruns and kickbacks could never happen here, and we all know how safe, efficient and profitable Amtrak has been. Build it and they will ride, we are told. Except that it hasn't quite worked out that way in China.

The Beijing-Tianjin line, built at a cost of $46 million per mile, is losing more than $100 million a year. Ticket prices are high for a Chinese citizenry with an estimated per-capita income of $4,300, still below the world average despite China's touted economic boom. People still prefer riding buses over these government-mandated bullet trains.

Fact is, high-speed rail, with all its glitz and glamour, sucks up huge gobs of money to build, and even if you attract the planned number of riders, you're lucky to cover just the debt service. Japan had to bail out its trains in 1987, as did Taiwan in 2009, two years after they began running.

Florida's Republican governor, Rick Scott, has refused to accept $2.4 billion from the Obama administration for the construction of a high-speed rail line between Tampa and Orlando. He feared that construction cost overruns alone would leave Florida taxpayers on the hook for $3 billion for a rail line that would never pay for itself. Was he watching China?

We share the belief that a free market should and can stimulate itself and remain competitive in a global marketplace. If we mandate top-down government-planned bullet trains, China's experience teaches us we'll succeed only in shooting ourselves in the foot.


April 28, 2011

China’s Exports Perch on Uncertain Truck System

SHANGHAI — For years, China’s export juggernaut has been fed by highly efficient factories, low-cost labor and a fleet of container ships capable of transporting huge volumes of toys, textiles, electronics and other goods to every corner of the world.

But there is a surprisingly weak link in the Made in China chain.

Moving those goods from the factory floor to one of China’s enormous seaports — often a drive of less than two hours — typically means relying on an independent trucking company. And as vital as trucking is to China’s mighty export machine, the government seems to be ignoring the drawbacks of what analysts say is an increasingly disorganized, inefficient and even costly way to transport factory goods to seaports.

Trucking’s tenuous status has been underscored by recent protests and demonstrations by drivers. Last week, in an unusually bold display of public anger, 2,000 truckers went on strike in Shanghai to complain about the rising cost of fuel and unfair government transportation fees. Some protestors hurled rocks, tried to overturn police cars and smashed the windshields of truck drivers who refused to join the strike.

The Shanghai municipal government eventually ended the three-day strike by arresting protestors and threatening strike organizers, while also promising to lower some fees that trucking companies must pay to use the roads and seaport.

But the challenges that trucking pose to China’s $1.5 trillion a year in exports are still in place — and could become even greater, now that huge factories have begun relocating to poorer, inland regions to save on labor costs.

“Our concern is that as these factories move away from the coast, the service standards won’t keep pace,” said Ken Glenn, an executive at APL, a transportation services company. “Rail and barge are even less developed.”

Within China, thousands of small trucking companies, many of them family-owned, compete by promising low-cost delivery. Then they overload their 18-wheelers in dangerous ways, pay bribes to ward off highway inspectors and hope to eke out tiny profits.

Now, though, with global oil prices sending the cost of fuel soaring, many truckers say they are heading toward bankruptcy.

“We’re paying a lot more money for fuel than we did three years ago, but what we get paid for freight has stayed the same,” said Qi Zhenwei, a truck owner stationed at a dusty trucking depot near one of Shanghai’s busiest ports. “How am I supposed to survive?”

Mark Millar, a China logistics expert at M Power Associates in Hong Kong, sees Chinese trucking as “a seriously fragmented and brutally competitive industry.”

“Most of the drivers are owner-operators, and in order to make money, they carry more cargo than the truck is supposed to hold,” Mr. Millar said. “This is obviously not a healthy model.”

Not all trucking in China is such a seat-of-the-pants affair. Some global companies transport goods by truck in sealed shipping containers from factory to dock, sometimes accompanied by security escorts.
But more often, goods destined for export are delivered to seaports by small trucking companies — usually hired by logistics firms that bargain to get the lowest possible shipping price. To scrape by, many of the small trucking firms violate the law, pay bribes to avoid heavy fines and transportation restrictions, and even force drivers to sleep in the trucks overnight, sometimes in insecure parking lots.

These rigors might seem to contradict the heavy investment in infrastructure and expressways that China has made to make its transportation network more efficient.

But many of this country’s modern roadways are expensive toll roads. And the government has placed tough regulations on many aspects of the transportation industry, which analysts say have burdened companies with heavy taxes, insurance and government fees. As a result, transporting goods by truck in China is relatively more expensive than doing so in the United States.

According to the American Trucking Associations, moving goods by truck in the United States costs about $1.75 per mile. That includes driver salaries, truck leases, insurance, tolls and many other related costs.

By comparison, trucking costs in China’s two biggest export regions — the Yangtze River Delta region near Shanghai and the Pearl River Delta around Hong Kong — are $2.50 to $3 a mile. That is despite low pay to Chinese drivers, who might earn only 25 cents an hour, versus about $17 an hour in the United States.

Corruption is also a major problem. Chinese truck drivers say highway and port inspectors routinely demand payoffs or bribes. Drivers who refuse to pay may find themselves hit by large fines for even the smallest infraction. (That many of the trucks are overweight makes them ripe for sanctions.) Some regions even operate illegal toll booths.

Rachel Katz, a Fulbright research fellow from the United States who is spending a year in China traveling with long-haul truck drivers, says the drivers are constantly harassed by highway officials.

“There’s every kind of fine you can imagine,” she said in a telephone interview from Chengdu, in southwest China. “There are many different people regulating the roads and finding a way to tax the truckers. I can’t believe the system operates this way.”

Ms. Katz recalls one driver telling her: “In the U.S., you issue tickets in order to control traffic. In China, we control traffic in order to issue tickets.”

Truck drivers do not get much sympathy from their clients — factory bosses who are also struggling to cope with inflation. With labor and raw material and energy prices soaring here, factories are reluctant to pay higher fees to move goods to the major ports.

Besides, many of the factory bosses seem to recognize that there is an oversupply of small trucking companies desperate for cargo.

“They face a situation of absolutely cutthroat competition, and many of them are not well educated,” said Tyrrell Duncan, a transportation director at the Asian Development Bank. “There aren’t programs to train them.”

Qi Zhenwei, who is 35, and his 31-year-old brother, Qi Erwei, are typical trucking bosses working in Shanghai’s bustling Baoshan port district.

Despite fears of government reprisals, they agreed to talk this week in the rusted metal container that now serves as a lounge at their dusty truck depot, amid engine parts and a bucket filled with cigarette butts. Between phone calls and dashes in and out of the makeshift lounge to talk to colleagues, they told their story.

Until about seven years ago, they were peasant farmers struggling to make a living in Henan Province, one of the country’s poorest regions. Neither of them had finished high school.

They traveled more than 500 miles east to Shanghai and found work as truck drivers. (“I once went 24 consecutive days without sleeping in a bed,” Qi Zhenwei said.) Eventually, they earned enough to combine their savings with $100,000 they borrowed from some friends and relatives to buy their own fleet of five new and used Chinese-made trucks.

But shortly after they invested in some of their most expensive vehicles, the global financial crisis struck. Exports plummeted, devastating their container hauling business. A year later, in 2009, when China’s exports began to rebound, so did inflation and fuel prices. And now, the brothers are faced with greater competition from a growing number of small trucking companies.

“So far, I didn’t make any money,” Qi Zhenwei complained.

The brothers refused to talk about the recent strike here, saying the government had been visiting all truckers in the area. But they freely discussed their costs: tire fees, insurance, driver salaries, road use fees, oil changes, repairs and even fees that trucks pay to enter the city.

“If I had a chance to sell the truck, I’d get out of the business,” the older brother said, dejectedly smoking a cigarette. “I’d go back to my hometown. Now, people there are planting crops for Chinese medicine. And they’re making good money.”