China Has A Debt Problem Three Times Larger Than Evergrande | Economics Explained

Video Statistics and Information

Video
Captions Word Cloud
Reddit Comments

I normally like Economics Explained but this is a weird take.

Some of the points are good, there are routes that China Railways has built high speed routes for that could have been served better by other mode, corruption plagues Chinese infrastructure spending and there are many legitimate issues with China's HSR network. Routes not being profitable isn't one of them though. Most passenger railway networks aren't profitable. The economic benefit of a well built-out passenger railway network, high speed or otherwise, comes not from the revenue generated from ticket sales but from the increased tax revenue generated from the railway's existence.

You wouldn't call the US highway network a "problem" because it doesn't make its money back in road tolls. Of course it doesn't. It's not supposed to. It's supposed to connect communities and make moving around the country easier, quicker and safer. The same is true for China's HSR network. The fact that some routes make money is a testament to how efficient trains are at moving massive volumes of people cost effectively but it's not the primary benefit of the system.

👍︎︎ 37 👤︎︎ u/Uzziya-S 📅︎︎ Dec 09 2021 🗫︎ replies

Just saying the US spends that much on the military every year and china in less than 4 years, I think that they can afford it

👍︎︎ 13 👤︎︎ u/Timeeeeey 📅︎︎ Dec 09 2021 🗫︎ replies

It’s very obvious that china views it’s technocrats and technological wonders as it’s source of wealth. The whole reason that Chinese leaders stay in power is not due to them creating cults of personalities or military power but because they move heaven and earth to make their move from agricultural mao-style communism to city communism appear like it’s working via public works. Chinese leaders probably know more about the pro/cons of continuing their massive public works projects than some guy on YouTube imo.

👍︎︎ 7 👤︎︎ u/Mexicancandi 📅︎︎ Dec 10 2021 🗫︎ replies
Captions
We often criticize our governments for  their inability to get things done,   especially when it comes to  large infrastructure projects. The US has been in the news for the federal  infrastructure plan which is promising to put   more than a trillion dollars towards upgrading and  repairing infrastructure all across the country. Already the project is attracting  criticisms from people arguing that this   won’t meet the requirements to fix  the nation's failing infrastructure. The same is true for smaller projects which   seem to inevitably be plagued with  delays and massive cost overruns. This is a real shame because  infrastructure spending can be   one of the best investments a government can make. In the short term, it acts as a form of stimulus.  Bridges and roads don’t build themselves,   they need laborers, engineers, city planners, and  sure, maybe even a few environmental consultants. Just like a stimulus check  this puts money directly   into people's pockets and alleviates unemployment. However, unlike a stimulus check  the money is actually going to   build something which will continue  to provide value to that economy   long after regular stimulus  checks would have been forgotten. Projects like the hoover dam were built in part as  a way to get people back to work during the great   recession. Now, almost 100 years later the damn  is still providing a reservoir and electricity. Infrastructure spending in a word, is fantastic,  it’s also politically palatable as well. Nobody   says the paychecks that workers receive on these  projects are handouts, and most infrastructure   these days also helps to generate clean energy,  or reduce time spent in cars, or whatever. Infrastructure spending is great, which is  probably part of the reason why people get   so frustrated when projects never seem to go  anywhere, or just get caught up in an endless   web of red tape and consultants. to look at places like China where  infrastructure projects just seem to work. American bridges and roads are falling into  disrepair at the same time China is building   feets of engineering once unimaginable.  China built an entire hospital in 10 days,   while it took the city of San Francisco  ten years to approve a new bus route. California has spent 20 years  planning a rail network in the   time China spent 20 years building  out the largest one in the world. And if you think I am just throwing shade  at America, then my own home here in Sydney   spent over three billion dollars and  more than 4 years to build out trams   which have all of the traffic issues of busses  combined with all of the flexibility of trains. It’s easy to see why people think  whatever it is that China is doing   is working, but unfortunately, it is not. China’s high speed rail network was the  centerpiece of the nation's infrastructure   development, the jewel in the crown of china’s  building spree and a public demonstration to   the world that effectively amounted  to “nah nah we are better than you”. The system is undeniably impressive, but  it’s also threatening to be a problem for   the Chinese economy that could make  Evergrande look like a sideshow. So. How did China build such a massive  high-speed railway network so fast? Why did it build such a massive network? And finally. How much did it really cost  to put all of this together? China is a very large country with a lot of  people in it. It’s also a country where car   ownership is seen as somewhat of a luxury.  For this reason, a robust rail network was   essential for providing a cheap and effective  way for people to get around the country. Now for a long time this need was mostly  ignored because most Chinese workers would   live and die in the city they would  born in, travel across the country   was very limited and so the demand for  such a rail network wasn’t really there. This all changed in the early 2000s. By this time  the country's plan to open up to the world was   well and truly in full swing. More and more young  workers were moving from their small hometowns to   large cities to provide the labor needed to fuel  the nation's ever growing industrial sector. These workers still wanted to be  able to get back to their families,   but air travel and personal cars were too  expensive for most. Before the rollout of   high speed rail most workers just settled  on taking bus journeys that would often take   days or even weeks to cover  relatively modest distances. By the time 2008 rolled around the Chinese  government had already started working on   some high speed rail developments, but the global   financial crisis pushed these efforts into  high gear, if you would pardon the pun. China was not immune from the fallout of the  GFC, it was even more heavily dependent on   trade back then than it is today, and trade  intensity during this period fell rapidly. We covered what trade intensity was in  our video two weeks ago on Brexit, so   if you want a detailed breakdown of what  this term means go and watch that video,   but put simply, a fall in trade intensity  meant both imports and exports were falling,   which for a country as dependent on  global trade as China, was bad news. The counter to this financial blow was fiscal  stimulus, but China was apprehensive about just   giving money out because they weren’t sure at  this point how long this crisis would last. Instead, they wanted to take people who  might have lost their jobs making stuff   for export markets and put them  to work building high speed rail. Keynes actually half joked about this  exact process in the ’30s. He argued   that an effective form of stimulus would be for  the government to bury bank notes in the ground,   because at least then the stimulus efforts  would put people to work digging up the money,   which would look good in unemployment metrics. Of course, if you can get something  out of this stimulus spending that   isn’t just a well toiled field  then that’s probably preferable. The high speed rail development achieved  this goal, it put millions of people to work,   the Beijing to shanghai track alone, had  over one hundred thousand direct on site   workers, and that’s to say nothing of other  workers in factories making steel and cement,   delivering materials to the site, or  simply providing goods and services to   the workers as they slowly built out these tracks. It was in large part because of  this high speed rail development   that China avoided going into a recession. So brilliant right? Mission accomplished,  China avoided recession and they got a   high speed rail network out of it,  which meant workers could freely   move around the country further improving  living standards and industrial capacity. Well, this is where the problems start. From its inception the rail program  has been marred by corruption,   now that’s kinda par for the course with a lot  of government works projects, especially those   taking place in China, but this was one of  the largest and most public projects ever   so the corruption scandals were also  bound to be bigger and bolder too. This was a bit of a problem for  the government because it meant   that they weren’t able to brag about  how amazing their new project was   without those claims being overshadowed by  news of some official taking a bribe or two. These issues were compounded in 2011 by  a crash between two high speed trains   which collided on a section of track that  was elevated twenty meters about the ground. It was later revealed that the accident was caused   by a series of management failures  which had overloaded the route. This had serious impacts on the public's  confidence in the high speed rail infrastructure   that China had just invested hundreds  of billions of dollars into building. It also resurfaced concerns about corruption   and nepotism in the ranks of the  now bloated ministry of railways. The government's solution to this was to  semi-privatize the railways by selling   them to the state owned corporation China  Railway. A year later the two companies   that were responsible for producing the rail  cars CSR and CNR, merged to form the CRRC. These were two massive state owned  corporations which set out on the biggest building boom yet. Because these corporations were  technically distinct from the government   they had more control over how  much money they could raise. They borrowed almost a trillion dollars to  get Chinese railways to where they are today   and they found this money through a combination  state owned banks, publicly issued bonds,   and investments from local governments. Now almost as soon as the final  piece of rail was laid on this   latest construction push the problems started. You see, by the time China rail had  started its latest building spree,   most of the highly profitable lines between major  population hubs had already been established. This meant that the new lines were been laid  to city centers which were not going to demand   the same volume of trains and therefore not  provide the same revenue from ticket sales. These projects were still pushed by the government  because they still wanted people to have access to   and from these smaller tier cities,  even if it wasn’t massively profitable. There are a few reasons why they did this, most of  them were political, Sam from Wendover Productions   did a great video on this so if you are really  interested in that go and watch his video. Misguided political motivations  aside there were other problems too. China's high speed rail network  became such a point of national pride   that the developers never really  stopped to ask if there was a   better solution to the problem of  moving people around the country. If you run the ministry of hammers, every  problem starts looking like a nail. Likewise,   if you run China railway, every problem looks  like it can be solved with a high speed train. The problem was that wasn’t  always necessarily the case.  High speed rail is very technically  impressive and gets a lot of attention   from the international community, attention  that the Chinese government really likes,   but sometimes there are better alternatives. Regular rail just for a start. Regular rail is much cheaper to build and operate  which means that tickets are also much cheaper,   this can be very important for cost  conscious workers who are still   far from wealthy by western standards. Regular rail also has the benefit  of being able to haul cargo,   which for a country as dependent on heavy  industry as china, is a really big deal. For a while and in isolation China’s high speed  rail network was overdone but breaking even,   losses from unprofitable routes were made  up for by the highly profitable routes,   and the state owned corporation even got  to make a little bit of profit for itself   after paying off it’s massive debt. This delicate balance stopped in 2015  however, since then the interest payments   on the accrued debts have been outpacing  the operating profits of the rail lines. A number of factors have been making this  worse, the lines are starting to age and are   requiring more and more maintenance, the rail  lines can’t increase their prices because then   people would just choose to fly or go back  to busses, and then covid hit which tanked   the demand for rail tickets to the point  where almost every line was unprofitable. So now China is looking at a state-owned  enterprise with 850 billion dollars in   debt that it can’t repay. Ironically this has  come at a time where fiscal stimulus like the   original high-speed rail development program  from 2008 would be needed all over again. Obviously, that’s not going to  happen and the government has   already halted construction  of any more high-speed rail,   but that doesn’t mean that they are free from  the problems the existing network will create. If they try to sell off the network to pay down  these loans, then any profit-motivated company   would only be interested in purchasing the  highly profitable routes between major cities. This means that the government would  need to maintain the unprofitable   routes with taxpayer money which  would be a huge ongoing expense. Alternatively, they could  just close down the railways,   but that would leave hundreds of  thousands of workers without a job   and destroy one of the great symbols of China's  economic success over the past two decades. The final option is a bailout and  a renationalization of the railway,   and yeah I know china railway is a state  owner company but it does have some   autonomy that isn’t afforded to  an actual government ministry. None of these options are particularly appealing,  especially during a time when China is facing down   the barrel of a housing market crash, an energy  crisis, and the impacts of an ongoing pandemic. I am always apprehensive  about predicting the future,   but it’s difficult to see a reality  where china just shrugs these issues off. If nothing else, let this latest issue be a  demonstration of why massive projects like   rail lines, highways and bridges take time  to plan and execute in your home country. You may get angry at the red tape, and I do  too, but perhaps pointing to China as the place   the just gets stuff done isn’t the best way to  highlight how useless our own governments are.
Info
Channel: Economics Explained
Views: 3,090,746
Rating: undefined out of 5
Keywords: economics, economics explained, china, china debt crisis, china debt problem, china debt default, china debt trap, chinese debt crisis, china housing market, china housing bubble, china debt bubble, china debt crisis explained, china economy, economy of china, china high speed rail, high speed rail debt, evergrande, china economic collapse, china investment, china rail, china news, chinas international debt crisis, china debt, china high speed train, china economy explained
Id: ITvXlax4ZXk
Channel Id: undefined
Length: 13min 59sec (839 seconds)
Published: Wed Dec 08 2021
Related Videos
Note
Please note that this website is currently a work in progress! Lots of interesting data and statistics to come.