Sunday, May 1, 2011

The Ultimate White Elephant?

I was taken aback by a headline I saw a couple days ago.

From China's The People's Daily:
Kunming-Singapore High-Speed Railway begins construction

The Kunming-Singapore High-Speed Railway began construction on April 25. The railway will shorten the travel time between Kunming and Singapore to only a little more than 10 hours in the future.

The Chinese government expects the railway to be put into operation by 2020. The line, starting from Kunming, capital of Yunnan Province; passes Mohan, a border town with Laos; and Wangrong, a popular Chinese tourist city; and ends in Vientiane, capital of Laos. Construction of the Mohan Railway Logistics Center has already started.

According to the Intergovernmental Agreement on the Trans-Asian Railway Network, the Kunming-Singapore High-Speed Railway, which is in fact the central line of the southeast part of the Trans-Asian Railway Network, will also pass Bangkok and Kuala Lumpur, and end in Singapore, with a total distance of 3,900 kilometers. Once completed, it will take passengers a little more than 10 hours to travel between Kunming and Singapore by train.

Read On

This is such an audacious plan. The red-blooded American can-do spirit pumping through my veins admires the 人定胜天 attitude that lies beneath such grandiose aspirations. I have a soft spot in my heart for this sort of stuff. China is grabbing the present by the horns and is going all out.

There is going to be plenty of skepticism of this sort of stuff from western pundits. The logistics of a plan this big can certainly be questioned. But the constant questioning of China's infrastructure by some seems misguided to me.

The loudest critic of these sorts of projects (and proponent of 杞人忧天) across the globe is "Dr. Doom" - NYU professor Nouriel Roubini. Roubini wrote an opinion piece a couple weeks ago that China is going to falter after 2013 after a recent visit to the country.


I recently took two trips to China just as the government launched its 12th Five-Year Plan to rebalance the country's long-term growth model. My visits deepened my view that there is a potentially destabilizing contradiction between China's short- and medium-term economic performance.

China's economy is overheating now, but, over time, its current overinvestment will prove deflationary both domestically and globally. Once increasing fixed investment becomes impossible—most likely after 2013—China is poised for a sharp slowdown. Instead of focusing on securing a soft landing today, Chinese policymakers should be worrying about the brick wall that economic growth may hit in the second half of the quinquennium.

Despite the rhetoric of the new Five-Year Plan—which, like the previous one, aims to increase the share of consumption in GDP—the path of least resistance is the status quo. The new plan's details reveal continued reliance on investment, including public housing, to support growth, rather than faster currency appreciation, substantial fiscal transfers to households, taxation and/or privatization of state-owned enterprises (SOEs), liberalization of the household registration (hukou) system, or an easing of financial repression.


Eventually, most likely after 2013, China will suffer a hard landing. All historical episodes of excessive investment—including East Asia in the 1990s—have ended with a financial crisis and/or a long period of slow growth. To avoid this fate, China needs to save less, reduce fixed investment, cut net exports as a share of GDP, and boost the share of consumption.

Read the Whole Article
Roubini tweeted a few times from his cell phone while on one of the trips to China he described in his article (these should be read from bottom to top).
I replied to Roubini with this comment:

Nouriel didn't reply to this, of course. But I'd like to hear his response to what I said.

I'm finding that when pundits are limited to the eastern seaboard of China - basically from Beijing to Shanghai on down to Guangzhou - they often feel as though China's over-invested in infrastructure (while some people who've never been to China really don't like China's method of development).

It is certainly true that China is developing unlike other countries in the present or the past. The more I watch China, though, the more I think that I see method in the madness: China is impossible to compare to any previous developing or currently developed country. They are simply playing by a different set of rules.

While there are cities in China with unbelievably developed infrastructure, there are hundreds of places throughout the interior of the country that have a long ways to go in terms of creating an adequate foundation. There is still so much of the country that is shockingly "backwards" in terms of infrastructure.

China is a big country. It's impossible to get a picture of China by looking at one city or one small region of the country. The skyline of Shanghai is certainly seductive, but one needs to counter-balanced its sleekness with a visit to a dusty third-tier provincial city in northern China or a mountain village in western China without a paved road.

Nobody knows whether China's bold actions such as high-speed rail, sprawling airport construction, and dozens of subway systems are going to be the path to greatness or the ultimate white elephants. But it is safe to say that there are hundreds of millions of Chinese people whose lives are changing very rapidly. And with those changes are going to be a new set of expectations: the freedom of leisurely travel, big-city life, and things to spend their disposable income on.

Developing the way China is developing is making more and more sense to me. It's hard to wrap one's mind around because what China's doing has never been done before. I understand the skepticism of China's methods of development. But personally, I wouldn't bet against their ultimate success.


Anonymous said...

I had to check my calendar, May 1, not April 1. Kunming to Singapore, that's ambitious. I share a bit of skepticism about the dragon waking and taking over the world, especially since recent actions show the government is too afraid of its own citizens to truly let them shine. However, I would never bet against China in completing a project like this. China loves its trains.

Ramesh said...

Totally agree - neither the doomsday predictors nor those who think everything in China is gold are right. China will find its own journey which will have both stunning highlights and lots of bumps - just as every other nation does.

White elephant or not, it would be great to travel on this train from one end to another. Maybe some day.