Tag Archives: Railways

China’s Mini-Stimulus Is As Much Political As Economic

WHAT IS SIGNIFICANT to this Bystander’s eye about the mini-stimulus package that China has just announced is that it is to be financed by central government bonds. That has two implications. The first is that the spending will be targeted to specific projects. When Beijing announced its 2008 stimulus it in effect set an overall goal and left it to provincial and municipal governments to fill in the details. That scattershot approach had several unintended consequences. One was a raft of what have turned out to be uneconomic investments in infrastructure and a credit boom that has left a large and ticking local-government debt bomb. Another was a further round of mutually enriching deals between local government officials and developers involving unpopular land requisition. This time more reliance will be put on the discipline of the debt markets to keep both borrowing and corruption in check.

Second, as well as  keeping the loan books of the banks swelling further at a time when their bad debt write-offs are rising, it will also provide a boost to the development of the onshore bond market. China will issue at least 150 billion yuan ($24 billion) of bonds this year to finance railway construction in the less developed central and western provinces of the country, part of a $300 billion yuan railway investment fund that will be open to outside investors. It also plans to issue 1 trillion yuan-worth of bonds over an unspecified period through the state-owned China Development Bank to build affordable housing.

Both initiatives will bring forward already planned work in order to ensure the economy stays within touching distance of its official target of 7.5% growth this year — ever more frequently described by officials as “about 7.5%” growth. They will also help generate the 10 million new jobs top policymakers deem necessary to ensure social stability. Those jobs will mostly be in poorer parts of the country and are intended to help reverse growing income inequality. This is stimulus that has political goals as much as economic ones.

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Ex-Railways Minister Liu Given Suspended Death Sentence

The corruption trial of Liu Zhijun, the disgraced former railways minister who dipped his hand deep into the honeypot of China’s rapid expansion of its high-speed rail network, has been overshadowed by the Bo Xilai affair. Yet it is arguably a purer test of President Xi Jinping’s stated intention to crack down on corrupt officials as it doesn’t carry any of the political theatre of the Bo case.

Liu becomes the most senior official to be sentenced since Xi came to power, though the investigation and arrest of the 60-year old former railways minister predates that. A Beijing court convicted Liu of accepting 64.6 million yuan ($10.5 million) in bribes between 1986 and 2011, though this Bystander suspects that isn’t even the half of it. By some estimates 3% was skimmed off China’s 2 trillion yuan buildout of its high-speed rail system.

Liu’s sentence of death with a two-year reprieve is effectively a life sentence. Sufficient deterrent, not just for what Xi called the powerful “tigers” but also for the low-ranking “flies” that the anti-corruption drive is targeting? More cases of both kinds being brought to court would help, but institutional reform is needed to break the systemic grip of graft.

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China Still Spending Billions On New Railways

A quick update to our note yesterday on China’s newest high-speed trains being tested on tracks that can stand extremes of hot and cold weather: The official Economic Information Daily says that China will invest 2.3 trillion yuan ($366 billion) in its railways over the current five-year plan to 2015. While that is 500 billion yuan less than originally planned, it is still up from the 1.9 trillion yuan spent in the great build-out under the 2006-201o five-year plan.

It is likely that the bulk of the cuts have already been made. Spending was reined in in the wake of the bribery and corruption scandal around sacked railways minister Liu Zhijun and then the Wenzhou crash. In July, state media reported that railway investment spending for this year, at 580 billion yuan, would be up 12.4% on the originally planned 516 billion yuan. Already approved projects were brought forward to counter slowing growth in the economy overall. State media have also reported that China’s railways lost 8.8 billion yuan ($1.4 billion) in the first half of this year.

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China’s Stimulus Spending Back On Track

Under the Blue Sky train Luo Chunxiao photo
Subways, railways and bridges. That is what China’s latest growth-restoring stimulus spending will look like for the most part. The railways ministry says it plans to spend 470 billion yuan ($75 billion) on lines and bridges this year, 14% more than last year, when spending was still depressed in the wake of the continuing corruption investigations that have dogged the ministry since its former minister, Liu Zhijun, was brought low on graft charges in 2011.

The new spending goal is also a tad higher than the annual spending figure mentioned early in July, 461 billion yuan, a sign that the government thinks the slow down in growth hasn’t yet bottomed out. The latest figure, and news of 27 billion yuan of bond issues to help finance it, followed a meeting of the State Council to discuss the economy. It is still well short of the 700 billion yuan the ministry spent in 2010. Beijing would also like some private investment in the system, and in the utilities, energy, telecommunications, financial, health and education industries.

Meanwhile, 28 cities have plans to build or extend subway systems by 2015, at a total cost of 1 trillion yuan. That is a potential addition to the local government debt bomb that should raise some eyebrows at the very least. Nor is running a subway system once built necessarily cheap. But that is a problem for tomorrow. Today’s priority, as Prime Minister Wen Jiabao repeated this week, is growth. Not that that makes tomorrow’s problems go away.

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Railroading China’s Environment

A bevy of red-crowned cranes fly over the wetland of the Zhalong Nature Reserve in northeast China's Heilongjiang Province, on July 25, 2009. Located near Qiqihar City in northeast China's Heilongjiang Province, the Zhalong Nature Reserve is a perfect habitat for red-crowned cranes, and also a perfect observation site for bird fans at home and abroad. (Xinhua/Zhang Xiaolong)

Construction of the Harbin-Qiqihar railway was suspended at the beginning of this month because its work camps threatened the Zhalong nature reserve (above), a wetlands nesting ground for red-crowned cranes. Perhaps surprisingly, the Ministry of Environmental Protection is proving itself a diligent guardian of the environment in the face of the rapid expansion of the country’s rail network. Even more surprisingly, the scandal-tainted railways have shown themselves to be pioneers in adopting environmental impact analysis and management into their expansion, according to a new paper* by the World Bank.

The world’s largest national railway development program for more than a century poses significant challenges to the environment and humans alike. There is no sugar-coating that. Some new lines cross sensitive ecosystems, are built in fragile mountain ecosystems, pass through densely populated areas, or threaten the traditional social and geographical connections of the countryside.

Environmental and social protection has been integrated into rail infrastructure development on six fronts, the paper says:

  • The simplest and most obvious one: routing lines around environmentally sensitive sites.
  • Implementing mitigation measures where social and environmental impacts are unavoidable, such as the provision of safe crossings under or over the new lines for humans, domesticated animals, wildlife and irrigation.
  • The use in mountainous areas of tunnel-bridge-tunnel schemes instead of embankments, which are at risk of landslides and erosion, despite bridges and tunnels costing half as much again to twice as embankments.
  • Recycling of waste materials.
  • Minimizing the impact of noise, vibration and erosion during construction.
  • Preserving of cultural resources and historical artifacts. The environmental impact assessment that every infrastructure project has to have includes a physical cultural resources survey. Where relics are suspected and impacts probable, detailed site investigation and excavation by experts is conducted prior to construction.

Building railways is disruptive and destructive, beyond doubt. Few residents who have had new lines pushed through where they live would argue with that. While the World Bank paper, No 6 in its series on China transport topics (Nos. 3 and 4 here), casts the efforts of the railways in a favorable light in terms of their sensitivity to the environment, its authors have a number of recommendations for further improvement:

  • Current environmental regulations and procedures remain specific to each railway administration. The authors suggests introducing an industry-wide code of practice for railway construction environmental management to standardize good practice and ensure uniform application.
  • Environment impact assessment documents are technically strong, but focus on the biophysical environment. Assessments would benefit from deeper analysis of the broader social and cultural impacts, such as land acquisition and involuntary resettlement, and on induced or cumulative impacts.
  • The environmental management plan that is often prepared in connection with any bank financing for each project should become mandatory. Such plans turn the conclusions of an environmental impact assessment into measures incorporated in to project design, bidding documents and implementation.

China: The Environmental Challenge of Railway Development  by Peishen Wang, Ning Yang and Juan D. Quintero, World Bank Office, Beijing. China Transport Topics No. 6,  June 2012.

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Party Expels Former Railways Minister Liu Zhijun

Disgraced former Railways minister Liu Zhijun has been expelled from the Party for corruption. He is also taking the fall for the extensive corruption and mismanagement throughout China’s sprawling railway system.

Xinhua reports:

Investigators found Liu used his position to seek huge illegal interests for Ding Yuxin, chairman of Beijing Boyou Investment Management Corporation, maneuvering which caused great economic losses and negative social influence, according to a statement issued by the CPC’s Central Commission for Discipline Inspection (CCDI).

The CCDI also discovered Liu, who the statement labeled “morally corrupted,” had taken a huge amount of bribes and bore the major responsibility for severe corruption in the railways system.

Liu was removed from office in February last year. He will now face criminal charges which carry a lengthy jail term and possibly a death sentence.

The rapid expansion of China’s high-speed rail network has had the bloom taken off it by massive fraud, waste and mismanagement. The Railways Ministry’s all-encompassing control of the system–alone among the world’s largest railways, it makes policy, builds and owns the infrastructure, operates the services and regulates the system, which stands alone from all other forms of transport–is starting to be undone. Last month, plans to allow more private investment into the system were announced, a first step to breaking up the ministry. This would separate the infrastructure from operations, but not go as far as a World Bank proposal to put railways under a new transport ministry.

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Breaking Up China’s Railways Behemoth

This Bystander suggested in January that China’s scandal-plagued railway ministry’s monopoly over the rail system might be due for a shake-up, highlighting a World Bank working paper as a trial balloon. So we note this sentence on the to-do list set out in the work report of China’s most powerful economic planning agency, the National Development and Reform Commission, to the recent National People’s Congress.

We will study and formulate a plan for reforming the railroad system in accordance with the principle of separating government functions from enterprise management and state asset management.

As the Bank’s paper pointed out, China’s is the only significant rail network in the world where the railways ministry makes policy, builds and owns the infrastructure, operates the services and regulates the system. Beyond the obvious conflicts of interests, which have shown themselves most prominently in the problem-beset build-out of the high-speed rail network, China’s rail system is now just so massive it is beyond the management of a single entity. The Bank’s paper, however, argued for rail to be put under a new transport ministry with multi-modal responsibilities for coordinating transport. If China is to make the most of all the transport infrastructure it has built over the past two decades, and that to come, it needs to integrate its road, rail and internal air and shipping with the sort of national transport strategy that is common in other countries.

That would be a mighty big to-do for the current leadership to leave to their successors. They would, no doubt, be happy to duck the bureaucratic civil war that carrying it out would involve. “Study and formulate a plan” is usually a euphemism for kicking hard decisions down the tracks, but they are none the less necessary for that. Breaking up the behemoth that is the railways ministry would be a good start.

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More Fraud Turned Up On China’s High-Speed Rails

High-speed trains start commercial service on Beijing-Shanghai run

This Bystander is not so much shocked as wearied by the latest revelations of embezzlement from China’s scandal-plagued high-speed rail network. The National Audit Office says that a second audit of the Beijing-Shanghai line, the centerpiece of the country’s rapid expansion of its high-speed rail network, has found that 491 million yuan ($78 million) has been skimmed off the project by “irregular practices in the construction and management”.

A first audit conducted in 2010 revealed that 187 million yuan had been stolen from the project, which went into commercial operation last June. The picture above shows the first southbound train nosing its way out of Beijing South station, carrying prime minister Wen Jiabao, who inaugurated the service on the 1,318-kilometer now five-hour journey. We are not clear if the latest number tops up the first audit or is in addition to it, but either way it is a tidy sum. The money seems to have been lifted from several pots: the compensation fund for residents whose homes were demolished to make way for the tracks; 413 million yuan of cancelled contracts for wind-shielding barriers that somehow still got paid out in part; 849 million yuan of procurements not carried out in accordance with the standard bidding process; and accounting practices that seem to have no problem with processing fake invoices.

In all, it has been estimated that 3% of the 2 trillion yuan China has spent on building its high-speed rail network  has been skimmed off one way or another. The rush to build not only created a giant honey-pot for contractors, suppliers and middlemen, but also one that was’t closely scrutinized. It has subsequently triggered allegations that safety, too, was sacrificed in the cause of speed, both of the trains and the pace of the network build-out. The consequences continue to reverberate. Earlier this month a section of track in Hubei collapsed, apparently because inferior materials were used in the construction of embankments.

The new Beijing-Shanghai audit also says that the company that built the line owes more than 8 billion yuan to suppliers and construction workers. Then railways minister Liu Zhijun was sacked in February 2011, a month before the announcement of the results of the first audit. It has since become clear that corruption surrounding the building of the high-speed rail network spread a long way down from the highest levels. Some officials of the Beijing-Shanghai High-Speed Railway Co. Ltd., and their suppliers, are, no doubt, now looking nervously over their shoulder.

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Stopped In Its Tracks

The stop sign is seen after the roadbed of a section of the new Hanyi High-speed Railway collapsed in Nanwan Village of Qianjiang city in central China's Hubei province, March 12, 2012. The roadbed of a 300-meter section rail collapsed on March 9, and workers working the section said heavy rain in the past few days may have caused the problem. The Hanyi High-speed Railway, which links the provincial capital Wuhan and Yichang city, is expected to open in May. The collapsed part has already undergone test runs. The 291-km Hanyi railway, constructed by the China Railway 12th Bureau Group Co., will be a major high-speed rail in central China. (Xinhua/Hao Tongqian)

A rail line being washed away by heavy rains is not that unusual. When it is a section of track on China’s trouble-plagued high-speed rail network just two months before the line is due to open, it makes headline news.

Some 300 meters of an embankment outside Qianjiang city in Hubei on the Hanyi High Speed Railway, a 291 kilometer route that connects Wuhan and Yichang, collapsed on Friday, state media report. An emergency task force has been drafted in to repair it  (above). It is far from clear why rain caused the embankment to collapse, or even if the damage is more extensive than officially acknowledged. Reports talk of the rails sinking over several kilometers. Even before the collapse, there were reports that engineers were complaining about sloppy construction along stretches of the track, will soil being used instead of rocks for the rail bed. Test runs had been conducted on the line without known incident, however. Early reports of Friday’s collapse say that the track’s foundations were washed away, but early reports in such matters rarely turn out to tell the full story.

The whole high-speed network has been plagued with problems, which most fatally came to head in last July’s crash at Wenzhou, which killed 40. But there have been repeated allegations that the rush to build the world’s biggest high-speed rail network meant that compromises were made on quality.

This latest incident undercuts the new confidence of China’s railway officials that they have got past the worst of their troubles. “Speed and safety are closely connected, but high speed does not necessarily lead to safety risks,” the chief researcher with the China Academy of Railway Sciences, said in an interview with Xinhua published over the weekend under the untimely headline, “China’s high-speed rail on right track”.

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Building China’s Railways: That Was Quick

Photo taken on Aug. 1, 2008 shows a bullet train runs through the Yangcun Bridge of the Beijing-Tianjin Express Line in north China's Tianjin Municipality.  (Xinhua/Yuan Ruilun)

China Transport Topics, published by the World Bank, are like buses. Nothing for a while, then two come along at once. This Bystander had barely digested No. 4, High-Speed Rail: The First Three Years, when No. 3 dropped in our in-box, Fast and Focused: Building China’s Railways by John Scales, Jitendra Sondhi and Paul Amos of the Bank’s Beijing office. This seeks to address a basic question about the world’s largest national railway build out for more than a century, how has China managed to build such an astonishing number of large and complex railway projects so much faster than any other country. A new rail line that might take 5-6 years from Beijing’s approval to system commissioning would typically take 7-15 years in almost any other country.

The authors’ answers to their core question boil down to three dominant factors:

  • the concentration of responsibility, power and access to resources in one organization, the Ministry of Railways;
  • strong technical capacity and processes; and
  • a program effect that delivers economies of standardization and scale.

Transport and project management geeks will enjoy delving into the detail the authors provide around their first two factors, but we find the third, the program effect, more interesting. Building railways in China has become routine. The sheer scale of the various projects both individually and collectively has all involved confident that long-term development of China’s railways will continue. That, in turn, the authors say, has “led to a huge increase in the capacity of the industry, from technical institutes through to contractors, manufacturers, service suppliers and many others.”

How transferable China’s experience in railway building is to other countries is moot. Few countries follow the model of an omnipotent and omnipresent railways ministry (and one of the authors has suggested in another paper that its time might be passing). Few countries, also, have the resources and need to develop a rail network on the scale China committed to with the Mid and Long-Term Plan it laid out in 2004 (see map). Technical capacity can be acquired, though. It is also worth noting that the great railway expansions in Europe and North America in the 19th century delivered new lines at about the same pace as China is doing today.

The big unanswered question, as the authors note, is “whether the sheer speed of implementation has adversely affected the overall life-cycle costs and reliability of project infrastructure.” In the wake of both the Wenzhou high-speed train crash and the winding down of the post-2008 stimulus, the pace of investment in railways is being reined in while those questions are assessed. Yet from here on, the main determinant of the pace of railway development in China may not be structural, but old-fashioned finance. With what has been built so far struggling to break even and GDP growth set to slow in the long-term, will China still be able to afford to add to the boxcars of rail debt it already has?

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