Railroad to nowhere?
On my latest fave source for China analysis, Patrick Chovanec writes about the folly of China's immense high-speed rail network. He makes two interesting points:
The $100bn/yr project has served as a stimulus package for the Chinese economy during the global slump, making up for lower demand for Chinese exports.
High-speed rail is an expensive form of transport, and therefore it is poorly suited to meet the demands for transportation in China. It is already drawing passengers from air travel rather than from slower trains. The average Chinese worker will not be able to afford the high prices for a long time, and this makes some uneasy about the financial viability of the network.Â
The second point has a broader implication for the Chinese economy: subsidizing investment exposes the economy to substantial systemic risk. China has pursued a growth strategy that relies on funneling cheap credit to business, and whether the astronomical rates of investment that have fuelled the incredible economic expansion will yield enough profits to allow repayment remains to be seen. It's worth watching the Chinese financial sector over the next few years to see what happens. Â Â
