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China no longer has the world's fast trains. It was forced to slow its lines amid revelations of corruption and corner cutting by contractors.  (Source: Reuters)

China's rail project faces soaring costs. At the same time the trains themselves have few riders due to the high ticket prices.  (Source: China Daily Photo)
Will corruption derail China's $1T USD train gambit?

It sounded like a perfect plan -- high-speed trains that would carry passengers at speeds almost equivalent of commercial airplanes.  But now, thanks to government corruption and quality issues, the project may never arrive at the station.

In February Liu Zhijun, the man in charge of China's $1T USD high-speed rail bid, was fired.  Under investigation on corruption charges, the 58-year-old's departure signaled the start of some major questions about the future of the project, which seeks to lay down as much track, in length, as a third of America's interstate highway system.

This month, amid rumors of trains almost literally derailing, China's Railways Ministry announced that it would be dropping the top speed of trains from 218 mph to 186 mph.  It would not comment on safety concerns other than to say the issues were "severe".  The slowdown drops China from having the world's fastest trains to being in a virtual tie with Europe and Japan.

It also announced plans to slow construction and drop ticket prices in order to try to close a budget deficit.  The Railways Ministry owes $276B USD to Chinese banks and failed to turn a profit in the first three months of the year -- at a time when it was expected to be turning the corner.

Patrick Chovanec, a professor at Tsinghua University in China states in an interview with The Washington Post, "They’ve taken on a massive amount of debt to build it."

Zhao Jian, a professor at Beijing Jiaotong University, says the project could lead to bank failures.  He states, "In China, we will have a debt crisis — a high-speed rail debt crisis. I think it is more serious than your subprime mortgage crisis. You can always leave a house or use it. The rail system is there. It’s a burden. You must operate the rail system, and when you operate it, the cost is very high."

Some of the funds for the project have been going towards their intended purchase -- laying rail.  Others have been going towards questionable expenditures like elegant glass and marble for the country's 295 train stations.  And there are rumors of local officials, including a woman in Shanxi province, setting up companies to take kickbacks from contractors.

Officials on the Beijing-Shanghai line project are accused of accepting $28.5M USD in bribes.  On top of that, the former Railways Ministry chief, Mr. Zhijun, stands accused of pocketing $122M USD.

"Engineers" working on the vital Beijing-to-Shanghai line actually had no credentials or formal education.  And in March government officials also found scores of fake invoices, which resulted in the government paying for phantom work.

Much like the Chinese manufacturing industry's struggles, there are fears that contractors are also cutting corners with substandard materials. 

In order to ensure safety, train tracks must be built with high quality fly ash, mixed with concrete.  But contractors are suspected of using lower quality ash mixed with other substances, potentially compromising miles of track.

Despite having the world's second largest economy, China's average yearly per capita income of $4,300 USD is well below the world average, according to the International Monetary Fund.  One of the biggest problems facing the train system is that the people of China are simply unable to pay the prices of tickets, which remain exorbitant by the nation's standards.

The government shut down older, cheaper slow train lines in a bid to get migrant workers to use the new lines.  But the tickets were too expensive and the bid failed -- the workers turned to the bus system, clogging highways.

China will have another crack at it, next February when the migrant workers once again return home in a brief exodus.  But it remains to be seen if the government has dropped prices enough to sell tickets -- and if it will be able to ensure the passengers safely reach their destination. 

The Asian giant's struggles are of great interest to the U.S., which is contemplating a much smaller government-backed high-speed rail effort.

 



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RE: The real question remains....
By yomamafor1 on 4/29/2011 5:03:38 PM , Rating: 6
Ahh, blame everything on the tax, eh? Perhaps you should recheck your figures before spewing out FUDs about these "insane taxes".

Capital gain tax in US: 15% for short term, 0% for long term
Capital gain tax in China: 10% for foreign company, 25% for domestic company.

Payroll tax in US: 5~35%
Payroll tax in China: 5~45%.

Corporate tax in US: 15~35%
Corporate tax in China: 10~20% for foreign company, 25% for domestic company.

http://www.pwccn.com/webmedia/doc/6339888577346518...

Insane indeed =).

No, the only reason why businesses move to China is to take advantage of Chinese' willingness to accept ultra-low wages. In Shanghai, the minimum wage in 200 USD per month, and in some part of China, 100 USD per month. Not to mention the fact that Chinese are willing to accept poor working condition and longer working hours than their American counterparts.

So the question becomes this: why would you hire somebody to do a job for $45k a year, when you can hire equivalent skill in China for less than $3600?


RE: The real question remains....
By Reclaimer77 on 4/29/11, Rating: -1
RE: The real question remains....
By yomamafor1 on 4/29/2011 6:28:36 PM , Rating: 4
LOL, what can the Obama Administration do anything about the fact that Chinese people are willing to accept $3600 a year for a job? There is no way United States will become a manufacturing industry, period. The standard of living is simply too high here. By the way, Chinese government does not impose health insurance on the companies. They impose that on the citizen, so of course the companies are not going to have a problem with it. Personally I prefer the single payer solution, but again, apparently it is considered "socialism" to have state sponsored medical insurance.

What we should do is invest in the future, in the technology, not trying to lower the taxes to attract those companies to return. They are not going to return, not until the Chinese government begins to give a damn about their workers' rights (ironic given it is a communistic regime), and their environment. On that front, the Obama Administration did increase funding for education, provide subsidy to alternative energy source, and biotechnology; two of them are considered world wide to be the up and coming industries in the next few decades.

Oh, and those "heavy regulations" are there to protect us, and our environment. Have you been to Beijing? Of course you haven't, because if you have, you wouldn't have that much of a problem with the regulations. Have you been to Yellow River? Again, of course you haven't as well. The facts of why we can still fish on the river, go to the beach, and drink the water from the tap are the direct results of those "heavy regulations".


RE: The real question remains....
By Alexvrb on 4/30/2011 9:56:56 PM , Rating: 2
The issue with state sponsored medical insurance is that it becomes yet another entitlement, another form of government aid, another welfare. We already have a large chunk of the population relying on government aid. I personally see it abused to hell and back, and it's a shame, because there are some who truly need it. Regardless, the burden on those paying only increases further. If you want to cut out some other social programs to cover this, I'd go for it.

Also, investing in the future is just code for more stimulus spending. You could increase education spending tenfold, and without actual reform (in the education system and in goverment spending), you won't accomplish anything.

We is needza edumacate our chillins! Den, dey is be pay off debt for us!


By YashBudini on 4/30/2011 11:08:51 PM , Rating: 3
quote:
LOL, what can the Obama Administration do anything about the fact that Chinese people are willing to accept $3600 a year for a job?

You don't understand Reclaimer77's position. He's been programmed by the RNC and Faux News, no amount of honesty outside of that world can be comprehended. You can get +5s and even +6s from now until doomsday and it won't make any difference. He's programmed beyond on the rational, he and his kind know no other way, no options of rational recourse exist. That's why all those that oppose his kind have only hollow victories in their eyes, no matter how concrete reality actually is.

All you can with stagnant people is to pity them. He'll be screaming at someone else of his flawless and absolute logic in the morning, it is inevitable.

Go ahead Spuke ask me for a reference. I dare you.


RE: The real question remains....
By ElFenix on 5/3/2011 1:32:34 PM , Rating: 2
short term capital gains rates are ordinary income rates, long term capital gains rates can be 0% if your ordinary income rates are 15% or lower, or 15% if ordinary rates are higher than 15%. i suppose that means that if your only income is capital gains then your long term rate is 0%.


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