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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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By YashBudini on 5/3/2011 5:11:00 PM , Rating: 2
To a lot of readers here you essentially stated Germany is 100% socialist. That would be the same group that believes bombing is a better way to go.

For some reason never explained the US government is 100% incompetent at everything but the military, where all of a sudden they are perfect and beyond question.


"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain














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