Road To Ruin

China may be looking at spending 600 billion yuan on extending its already over-indebted toll road network. This is another sign, to this Bystander’s eye, that an economic stimulus package in the form of transport infrastructure spending is in the making, but it also raises a red flag about tackling slowing growth this way.

Caixin quotes transport ministry spokesman He Jianzhong saying that the country’s toll roads’ aggregate debt, at 2.32 trillion yuan in 2011, was equivalent to 64% of its accumulated investment of 3.65 trillion yuan, still well short of the 80% he said banks use as a red line when determining whether to grant loans. He says that means toll-road building “still merits bank lending” — 600 billion yuan-worth by our back-of-the-envelope calculation.

Setting aside the thought that there is more sophistication to Chinese banks’ credit risk analysis than that calculation (not something we do with full confidence, it is true), we are surprised that toll roads, some of which are not even earning enough from tolls to cover their existing debt service, would be the recipient of such new investment. The whole system is troubled. Recent political pressure has been to cut the cost of tolls, which are expensive and unpopular with drivers, and to crackdown on illegal toll taking. All this puts further financial pressure on toll-road builders and operators.

Some new toll-road lending has already gone to refinance old loans incurred in the three-year road building frenzy that followed China’s post-2008 global crisis stimulus spending. It is a microcosmic warning of the long-term dangers of relying on fixed-asset investment to generate growth, as China has done. In the end the debt becomes unsustainable.

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2 Comments

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2 responses to “Road To Ruin

  1. cindy Hoong

    I am not sure if what I write is correct, or if it is directly related to the content of this article. Here is my observations on 1 country without and 3 countries with toll system.

    1) In Holland there is no toll system. YET. But we pay high road tax and insurance.

    2) I have spent quite a lot of money on toll-paying in the US — Chicago Tri state, Florida etc. I found Chicago is the most efficient and fair. I have no problems to pay BECAUSE when snow comes, the highway system keeps the road so well, I paid gladly any time. In Florida, if you are around Disney World, beware .. they are privately own. One pays through the nose.

    3) In Shanghai, my experience is based on many years ago, the amount of toll charges were just ridiculous for local. SO, locals and taxi would just go round and round in circle to avoid paying. IN THE END … toll collects no money, passengers got pissed-off (ME in this case because instead of 15 minutes, it took an hour!), CO2 went sky hight, local road damages, traffic jams, and I still wonder in the end is the gasoline cheaper, or toll cheaper.

    4) In Malaysia, toll is ridiculously high as compared to Chicago Tri-state. when one considered income of users/car drivers. Yes. It is true there are many wealthy people driving fancy cars, but the average citizens do not drive fancy cars. They need the cars because public transportations are inadequate or plain no-public-transport …

    In any country, toll fees should be a token to HELP pay for building costs. IF necessary. SHOULD not be the sole reason to build roads to collect Toll fees (THINK CORRUPTIONS). It would make much more sense to collect ROAD-usage based on the money-value of a car. The moe expensive the car, the higher the rate. NOT just token. Really high. Especially in country such as China where buying expensive cars is to show off how much one’s worth. Then let these wealthy people pay for them. The same I would suggest for Malaysia.

    Well, think about it. All these expensive cars are not fuel friendly. By putting higher import and road tax, we might just kill a few birds with one stone — help pay for roads infrastructures, cut consumptions of fuel (think twice before buying expensive car), cut CO2, less dependency on oil producing countries .. the list can go on for quite a bit …

  2. cindy Hoong

    I would like to add to my first comment — The toll fee collects by Chicago Tri-state is what I called token-to-help-pay. It is more or less the same rate as paying public transportation. Very fair. I lived around Chicago Tri-state for about 10 years and traveled frequently to Florida.

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