Wednesday, June 22, 2011

The Chinese are coming; the Chinese are coming. Should we be concerned?

If another country's industrial capacity comes to the US to build and operate our high-speed rail, is that the same thing as privatizing HSR? The Republicans, John Mica in particular, want to privatize the Northeast Corridor parts of Amtrak.  Is what the Chinese are offering California the same thing?

Some of my colleagues are not worried about China's desire to take over our HSR project in California, but I am.  The temptation for the US and especially for California, must be huge. 

The Chinese have assembled a consortium of manufacturers and HSR operators. In China, the larger organizations all have very close ties to the Government and we can safely assume this consortium does also.

This consortium, described in the first article, below,  has given the CHSRA a letter of intent and interest, inasmuch as the rail authority has already made it clear that they will be seeking actual bidders on the Central Valley construction, slated to begin toward the end of 2012.

If the consortium won the tender, the bureau would operate the line, CRCC would build the track, CSR would supply the rolling stock and the institute would design the high-speed project, Qian said.

We can see that this would be a vertically integrated multi-layered Chinese organization able to do the entire job, from design-built to operate.

The hard question is what the financials are in this scenario.  Would this constitute a wholly owned major capital investment on the part of the Chinese in California's transportation system?  Would they expect subsidy compensation on a permanent basis from the State?  Would the DOT and FRA find this an acceptable contractual relationship?  Just what were the negotiations between the Chinese and Californians, and were any federal representatives a party to these discussions?

It should go without saying that it is in China's interest to "get their foot in the door" insofar as there actually will be a high-speed rail market in this country.  However, that's far from clear.  Therefore, the Chinese would be assuming huge investment risks.  They could build California's rail system as a loss leader, giving them the advantage for all other HSR projects in the US.

Note also that other major HSR nations are interested in getting their foot in the door as well. As an article pointed out recently, Siemens bought 20 acres next to their existing assembly facility outside of Sacramento with the intention of expanding that assembly capacity to accommodate HSR. 

Even as Congress blathers about imposing "Buy America" constraints on our infrastructure investments, predatory overseas manufacturers and foreign contracting companies are licking their chops for the US check-book.

The New York Times looks at China's HSR and its impact

The second article, below, comes from the New York Times and is a comprehensive overview of high-speed rail and it's impact on China and its economy.

The editorial position of the New York Times is pro-HSR.  In many ways, this article is a HSR puff-piece.  While it mentions them, the problems with the Chinese HSR system are extensive and severe.  While the train mentioned appears to be consistently full, other trains are running nearly empty.  The funds the Chinese borrowed from the banks  to build this rail system has produced large debts that have become a serious economic challenge to their exploding economy.  Too much, too soon.  The goal has been presige, and beating out the competition in other world markets.  It could be called militant economic growth and high-speed rail has been one of the weapons of this competition. That approach produces corruption, hasty and sloppy construction and lots of back-tracking. 

The whole point is that we have not exercised appropriate caution or done our due diligence, such as cost-benefit analysis, as the Administration has rushed us into this high-speed rail vision.  As we've said many times, we have no over-arching transportation strategy.  We don't know what we should do about our existing deteriorating transit capacity, including Amtrak. We are making gut intuitive decisions in seeking HSR, without any understanding of the downside; as if we don't care.  That's dreadful government policy!

We have no master plan that might, or might not include high-speed rail.  Therefore the US is rushing willy-nilly into something it can't afford and doesn't need because we haven't done our homework and we -- that is, all the promoting politicians -- are eager to distribute federal funding to our congressional districts in the name of "winning the future." That means, it's not a train project; it's a pork project.  Instead of being our role model, the Chinese should be our cautionary object lesson.
China's Rail Titans Bid For U.S. High-Speed Project
Updated: June 22, 2011

After 150 years, the Chinese are again looking to play a major role in building American railroads, with a consortium of state-owned companies bidding for the first high-speed rail project in the United States.

The consortium comprising the Shanghai Railway Bureau, China Railway Construction Corporation (Hong Kong- and Shanghai-listed CRCC), CSR Corporation (also listed in Hong Kong and Shanghai) and the Third Railway Survey and Design Institute (majority-owned by the Railways Ministry) submitted an expression of interest in March to bid for California's high-speed rail project.

This move was revealed at the High Speed Rail Asia conference in Hong Kong yesterday by Qian Guifeng, deputy director of the US Railway Project Working Group, the Ministry of Railways' unit promoting Chinese railway firms in the US.

If the consortium won the tender, the bureau would operate the line, CRCC would build the track, CSR would supply the rolling stock and the institute would design the high-speed project, Qian said. Consortia from Japan, France, Spain and South Korea had also submitted expressions of interest to bid for the project, she said.

Alstom of France, Britain's Virgin Rail Group and Amtrak of the US have expressed interest in the project, according to the California High-Speed Rail Authority's website.

The 1,290-kilometre line from north to south California will cost US$45 billion, of which US$12 billion is expected to come from private-public partnerships.

The railway has received US$3.4 billion in US federal government funding, the biggest allocation for a high-speed rail project. Trains on the line will run at 354 kilometres per hour.

Rod Diridon, a former board member of the California High-Speed Rail Authority, said that by September next year, one of the consortia was expected to be chosen and construction would begin.

The line's main section is expected to be completed by 2020, according to Diridon, who is also executive director of the Mineta Transportation Institute, a US government-funded think-tank.

The dismissal of former Railways Minister Liu Zhijun in February would not affect China's ability to win contracts on the project, Diridon said. "The Chinese Ministry of Railways people are working on US-China railway partnerships in potential US high-speed rail projects - they are still there and they are working hard," he said.

Qian said CRCC, China Development Bank and a joint venture between CSR and US giant GE were interested in bidding for another US high-speed rail project, DesertXpress, between Los Angeles and Las Vegas.

China Development Bank hopes to finance the project, with CRCC laying the track and the joint venture supplying the trains. The timetable for the DesertXpress had yet to be determined because the project was trying to secure funding, she said. In addition, Qian said, the Railways Ministry was in talks with US authorities over the Chicago airport high-speed rail project.

The Spanish government plans to expand its existing high-speed rail network as well, and given the dire state of the Spanish economy, is interested in attracting private-public partnerships, according to Juan Matias Archilla Pintidura, international project director of Renfe, the Spanish state-owned railway company.

Pintidura said a Chinese rolling stock manufacturer was interested in bidding for the Spanish high-speed projects. China has two dominant rolling stock makers: CSR and China CNR Corporation.

Copyright 2008 LexisNexis, a division of Reed Elsevier Inc. All rights reserved.


High-Speed Rail Poised to Transform China
Published: June 22, 2011
CHANGSHA, CHINA — Even as China prepares to open bullet train service between Beijing and Shanghai by July 1, its steadily expanding high-speed rail network is being pilloried on a scale rare among Chinese citizens and the news media.

Complaints include the system’s high costs and fares, the quality of construction and an allegation of self-dealing by a rail minister who was fired this year on grounds of corruption.

But often overlooked amid all the controversy are the very real economic benefits that the world’s most advanced fast-rail system is bringing to China, and the competitive challenges it poses for the United States and Europe.

Just as building the interstate highway system in the United States a half-century ago made modern commerce more feasible on a national scale, China’s ambitious rail rollout is helping to integrate the economy of this sprawling, populous nation. In China’s case, it is doing so on a much faster construction timetable and at significantly higher travel speeds than anything envisioned by the United States in the 1950s.

Work crews of as many as 100,000 people per line have built about half of the 16,000-kilometer, or 10,000-mile, network in just six years, in many cases ahead of schedule, including the Beijing-to-Shanghai line, which was originally planned to open next year. The entire system is still on course to be completed by 2020.

For the United States and Europe, the implications go beyond marveling at the pace of Communist-style civil engineering. As trains traveling 320 kilometers per hour link cities and provinces that were previously as much as 24 hours by road or rail from the entrepreneurial seacoast, China’s manufacturing might and global-export machine are likely to grow more powerful.

Zhen Qinan, a founder of the stock exchange in the coastal city of Shenzhen and the recently retired chief executive of ZK Energy, a wind turbine producer in Changsha, said that high-speed trains were making it more convenient to base businesses here in Hunan Province — a populous region that has long provided labor to the factories of the east, but whose mountain ranges have tended to isolate it from the economic mainstream.

Mr. Zhen ticked off Hunan’s economic attributes: “Land is much cheaper. Electricity is cheaper. Labor is cheaper.”

Throughout China, real estate prices and investments have risen sharply in the more than 200 inland cities that have already been connected by high-speed lines in the past three years. Businesses are flocking to these cities, now just a few hours by bullet train from China’s busiest and most international metropolises.

Meanwhile, a shift in passenger traffic to the new high-speed rail routes has freed up congested older rail lines for freight. That has allowed coal mines and shippers to switch to cheaper rail transport from costly trucks for heavy cargos.

Because of this shift, plus the further construction of freight rail lines, the tonnage hauled by China’s rail system increased in 2010 by an amount equaling the entire freight carried last year by the combined rail systems of Britain, France, Germany and Poland, according to the World Bank.

The bullet train bonanza, and the competitive challenge it poses for the West, is only likely to increase with the opening of the 1,320-kilometer Beijing-to-Shanghai line, which will create a business corridor between China’s two most dynamic cities. The Ministry of Railways plans 90 bullet trains a day in each direction.

The trains will barrel along at speeds of more than 300 kilometers per hour initially, with plans to accelerate to about 350 kilometers per hour by the summer of 2012 if the first year of operation goes smoothly.

Even at the initial speeds, the trains will take less than five hours to travel between Beijing and Shanghai. That is roughly comparable to the distance between New York and Atlanta, which takes nearly 18 hours on an Amtrak train.

China’s huge investment in high-speed rail may be instructive for the United States, whether for proponents of U.S. rail investments or critics who consider bullet trains a boondoggle.

President Barack Obama, who has proposed spending $53 billion on high-speed rail over the next six years, faced a setback in his budget deal in April with Republicans in Congress, which eliminated money for that plan this year.

Last autumn, newly elected Republican governors in Florida, Ohio and Wisconsin turned down U.S. money that their Democratic predecessors had won for new rail routes, worrying that their states could end up covering most of the costs for trains that would draw few riders.

But then, high-speed rail is not universally acclaimed in China, either.

Financial regulators in Beijing have cautioned banks to monitor their rising exposure from hefty loans to the rail ministry. To pay for rapid deployment of the high-speed system, the ministry has borrowed more than 2 trillion renminbi, or more than $300 billion. It plans to invest an additional 750 billion renminbi this year, despite running losses on existing operations that it attributes mainly to rising diesel fuel costs for older lines, as well as rising interest payments.

Among the biggest beneficiaries of the high-speed rail system are companies that contribute nothing to defray its costs. Those would be freight shippers, which now have more exclusive use of the older rail lines, with fewer delays.

On the older tracks, the rail ministry has long been able to dictate that freight rates would subsidize passenger trains because the ministry owns those older tracks outright. The new, high-speed lines — passenger trains only — are owned by joint ventures between the ministry and provincial governments. That has prevented the ministry from forcing freight shippers to cross-subsidize the new high-speed services. As a result, passengers must pay much higher fares on the new trains than on the older ones.

The lack of freight subsidies is also causing concern in the rail and banking industries that the debt agreements of some joint ventures might need to be revised to extend the repayment of investment costs over more years.

The joint ventures were set up to give provincial governments an incentive to cooperate in acquiring land for the new routes. But those partnerships typically own only train stations and tracks. The land surrounding the stations often is owned by companies belonging to provincial and municipal government agencies, which have reaped windfall profits by selling such property to developers.

During a 20-minute taxi ride from a hotel in central Changsha to the high-speed rail station, a visitor counted 195 tower cranes erecting high-rise buildings.

According to the National Bureau of Statistics of China, residential real estate prices rose faster in the first five months of this year in Changsha than in all but three other Chinese cities — all of which are also high-speed rail centers.

For ordinary citizens, meanwhile, the steep prices for high-speed train tickets have touched China’s raw nerve of rising income inequality.

“The government is just abusing the money of the common people,” said one posting on an Internet discussion forum, defying the network’s heavy censorship.

From Changsha to Guangzhou, a two-hour journey at speeds of up to 340 kilometers per hour, the one-way fare in economy class is 333 renminbi. That is comparable to a deeply discounted airfare, but expensive for a migrant worker from Hunan who might earn 1,000 renminbi to 2,500 renminbi a month in wages in the city of Guangzhou. The same trip takes nine hours on an older diesel train and costs 99 renminbi.

Chinese and foreign engineers have questioned the long-term strength of the concrete used in bridges and viaducts under contracts awarded during the term of the disgraced former rail minister, Liu Zhijun.

The rail ministry’s new leaders, brought in after the corruption investigation, contend that safety concerns are misplaced. But they have acknowledged them, along with the public anger over fares, by announcing plans to lower the top speed on many routes to 300 kilometers per hour from 350 kilometers per hour on July 1. The change will sharply reduce the amount of electricity consumed and allow officials to pass on the savings through reduced ticket prices. The speed reduction would also at least partially address safety concerns.

On Tuesday and Wednesday, several Chinese news media outlets quoted Zhou Yimin, a former deputy chief engineer at the rail ministry, as saying that China’s high-speed trains essentially used European and Japanese technology designed for safe use up to 300 kilometers per hour. The trains can be driven considerably faster, as China has been doing until now and plans to resume doing a year from now on the route from Beijing to Shanghai, but this reduces the safety margin, he said. The rail ministry had no immediate comment on Wednesday.

China has not disclosed any fatal crashes since its high-speed rail network began operations three years ago, while nearly 100,000 people a year die on Chinese roads, according to official statistics. International health experts say that the true total for road deaths is even higher.

When the Beijing-to-Shanghai line opens, it will create a north-to-south artery with links to east-to-west rail lines at two dozen stations along the way.

“It’s the network together that makes it work,” said John Scales, a rail expert in the Beijing office of the World Bank who has advised China, “knowing you can go from Shijiazhuang to Beijing and then transfer to Tianjin, so the coal guys can go to the port and conduct business with their shippers, for example.”

Already, the longer routes elsewhere appear to draw much heavier ridership. The trains, which typically carry 600 passengers, sometimes sell out despite departures every 10 or 15 minutes, particularly on Fridays but sometimes even at lunchtime in the middle of the week.

Of course, high speed is relative. First, a passenger must actually get a seat.

Zhou Junde, a migrant construction worker with a large red and green tattoo of a hawk on the right side of his neck, stood in line at the Changsha station on a recent Friday afternoon to buy a high-speed ticket to Guangzhou. But the next high-speed train was entirely sold out, and so was the next one 10 minutes after that. He would have to wait 30 minutes to board a train with a seat.
“Sometimes,” he said, “I come several hours early to get the departure I want.”

Ian Johnson contributed reporting from Beijing. Adam Century contributed research from Beijing.

No comments: