Why CHINA now has a serious problem with its famous BULLET TRAINS

in 2007 there was only one high-speed train line in China that is one that reached speeds of 155 miles per hour however only 15 years later China has the most extensive high-speed rail network and already exceeds 23 000 miles to get an idea the second country with the most extensive high-speed rail network is Spain with more or less 2 500 miles and the third is Japan with 1 800 miles and it all started in the early 1980s under the leadership of Deng Xiaoping who was China's leader for almost two decades after a visit to Japan in 1978 Deng Xiaoping was impressed by the world's first bullet train from this the idea of producing high-speed trains was born but China first had to import Advanced foreign technology from France Germany and Japan the expansion of the bullet train Network accelerated after the 2008 financial crisis and years later it would become one of the symbols of China's booming economy the problem is that by 2035 they plan to have 70 000 kilometers or 43 000 miles of High-Speed Rail lines that is almost double the current length and these Ambitions may be a bad idea so the question is if China's high-speed rail network is a symbol of the country's economic development to the world why is it a bad idea to keep expanding it for many years the need for a bullet train network was ignored in China because most people work in the countryside or in small towns so they did not need to travel to the big cities but this all changed when China joined the World Trade Organization in 2001 so factories started to need massive Workforce so more and more workers moved from the countryside and small towns to the big cities to work in the industrial sector this was a time when China had become the world's Factory an estimated 290 million people in China migrated from the countryside to the cities in the last three decades this massive migration made living in the big cities more expensive because there was less and less land to build houses on so a high-speed rail network began to make more sense for two reasons first to allow commuters to escape the high costs of big cities and live in cheaper nearby cities for example in kunchen a medium-sized city of less than one million people located about 37 miles from Shanghai housing costs 70 percent less than in Shanghai and the bullet train between the two cities takes only 19 minutes and costs three dollars and six cents so the Bullet Train improved the quality of life for millions of workers who could move freely around the country working in one city and living in another the second reason why building a large rail network of bullet trains made sense is that by the time 2008 came around the Chinese government had already started working on some High-Speed Rail projects but the global financial crisis of 2008 accelerated the process because for the government building all kinds of infrastructure projects was the best way to avoid a recession the Beijing to Shanghai Railway alone had more than one hundred thousand direct workers in addition to the other sectors that benefited so up to this point building a high-speed rail network made sense because the first lines connected the largest and most populous cities for example in 2011 the line connecting Beijing a city of 22 million people with Shanghai another city of 28 million people was completed no wonder it is the most profitable bullet train route in the world with revenues of 970 million dollars a year and in general the initial routes are the most profitable because they were built in the eastern part of China which is the most densely populated part of the country in fact low population density is the main reason why the U.S does not have a bullet train Network and Europe does but back to the subject it should be noted that building bullet train lines is very expensive according to the oecd it costs 90 percent more to build lines for trains reaching 217 miles per hour than it does to build lines for speeds of 155 miles per hour but there are lines located in dense regions that can justify their high cost in terms of both daily travel frequency and ticket prices such as the line connecting Beijing to Shanghai however China's current bullet train network has gone from being cost effective and beneficial to Millions to being a major problem for the Chinese economy simply because the network is already larger than it should be when China began the second wave of rail Construction in 2014 most of the profitable lines had already been built between major cities this meant that new lines being built Inland or connecting much smaller cities would not demand the same volume of trains and therefore would not provide the same revenue from ticket sales despite this the government continued to push these projects because it wanted the country to continue to grow economically even if the lines were not profitable this is partly because both local and National politicians like to leave their legacy with infrastructure projects and bullet trains are very eye-catching and often attract attention even from the International Community the high-speed rail network has become a source of national pride however it is very expensive and not financially viable in all regions the line connecting romkey to land show for example has the capacity for 160 round trips but makes only four a 2019 World Bank study found that only five of the 15 fastest lines cover their operating and capital costs building lines for traditional that is non-high speed trains is much cheaper in addition they also have the possibility to transport Freight but as mentioned bullet trains are more eye-catching and as expected building bullet trains in two small and low-income towns LED China's state-owned Railway company to reach two high debt levels because many lines are not profitable this single company alone had a debt of about 900 billion dollars in 2022 that is six percent of China's GDP by way of comparison this Chinese state-owned company alone has more debt than the value of the goods and services produced by Switzerland in an entire year let us remember that the Chinese real estate crisis of 2021 was triggered because the ever granted company had difficulties in repaying its 300 billion dollars debt and in this case with the Chinese Railway company we are talking about a debt of 900 billion dollars that is three times that of evergrandy so it is a very high debt in absolute and relative terms that is why in March 2021 the state Council in China issued a document aimed at preventing local governments from building projects without viability and taking on very high debt burdens the document underlined the prohibition of building High-Speed Rail infrastructure with expected utilization rates of less than 80 percent in other words limiting the construction of train lines reaching 217 miles per hour only to connect large cities however at the end of May 2022 one year after imposing further restrictions the same state Council passed a resolution to issue debt bonds for USD 43 billion to finance Railway constructions of the Chinese State Railway company which seems to be a contradiction because the aim is to further expand the high-speed network but already most major cities are connected thus while China's bullet trains were a visible symbol of the country's rapid economic growth their uncontrolled construction is a symbol of the inefficiency of over-planned economies where resources are allocated as necessary to get a project off the ground but because they are not balanced by the free market or political opposition they sometimes end up being underutilized or unnecessary thanks for watching see you in the next video

Channel: Economics Nation

Views: 842,544

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Id: mAFVHJ-6FEY

Length: 8min 13sec (493 seconds)

Published: Sun Jan 29 2023