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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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The real question remains....
By YashBudini on 4/28/2011 8:40:18 PM , Rating: 5
Has is been tested for lead? Or is that a US export only problem?




RE: The real question remains....
By Angstromm on 4/28/2011 9:03:39 PM , Rating: 2
...or cadmium!


RE: The real question remains....
By Angstromm on 4/28/2011 9:17:41 PM , Rating: 3
...or melamine (in infant milk powder), high levels of pesticides on/in foods, fake drugs, oxidized benzoformyl, Dichlorvos, diethylene glycol (in toothpaste and cough syrup), ad infinitum...


RE: The real question remains....
By Flunk on 4/28/2011 11:21:13 PM , Rating: 5
I don't think anyone is going to be eating the trains so I think they're good.


RE: The real question remains....
By YashBudini on 4/29/2011 5:20:51 PM , Rating: 2
quote:
I don't think anyone is going to be eating the trains so I think they're good.

The local transfer station keeps CRT TVs and Monitors outside exposed to the elements. Rain enters these sets and comes into contact with unprotected lead inside, and then runs out the bottom, entering either local groundwater or into the untreated sewer system into the local river.

No eating required.


RE: The real question remains....
By tastyratz on 4/29/2011 6:04:56 PM , Rating: 2
Good call.
Don't drink from the water supply, down with trains!


RE: The real question remains....
By YashBudini on 4/29/2011 6:08:42 PM , Rating: 2
There's enough people here who can't make the proper use of facts, no need to add to their numbers.


RE: The real question remains....
By Alexvrb on 4/30/2011 9:33:21 PM , Rating: 2
Zing!


RE: The real question remains....
By toyotabedzrock on 4/29/2011 12:13:19 AM , Rating: 2
I have to wonder why our corporations think they will make a profit by moving there.

Unless they have a corrupt deal with the Government there already.


RE: The real question remains....
By Strunf on 4/29/2011 8:01:53 AM , Rating: 4
Multinationals love corrupt governments, it makes everything much easier and in the end cheaper for them.


RE: The real question remains....
By Reclaimer77 on 4/29/11, Rating: -1
RE: The real question remains....
By bah12 on 4/29/11, Rating: 0
RE: The real question remains....
By Reclaimer77 on 4/29/11, Rating: -1
RE: The real question remains....
By bah12 on 4/29/2011 4:20:17 PM , Rating: 1
Oh I agree 100% there are a plethora of reasons to move, my point was that wages alone are more than enough to convince most businesses. In all honesty given the issues you and I both have raised it makes very little sense to make something here if geography is not at play.

The sad thing is I'm actually surprised we have any manufacturing at all still on our soil. It is a very slippery slope, and I hope and pray we are not too far over the edge to keep from recovering.


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%.


RE: The real question remains....
By TheTruth on 4/29/2011 3:47:04 PM , Rating: 3
The thing you're not taking into account is the type of job union joe is doing.

If you could make the same amount of money in an air conditioned mcdonalds as standing all in day in a hot, dirty, and potentially dangerous environment which would you choose?

In either case closing that gap will only result in a higher number of people on government aid and fewer people providing the money to pay it.


RE: The real question remains....
By Lerianis on 4/29/2011 4:22:02 PM , Rating: 2
So, basically you feel that a person doing a... janitor job is less worthy of good pay than someone doing another 'highly technical' job and should have to live a life in poverty? NOT AGREED!

The fact is that we have NOT driven up the cost of manufacturing things in America. In fact, adjusted for inflation, most people are getting paid LESS than they did in the 1970's.... 1/2 to 2/3rd's less!

So, let's stop with the bullplop that we have made it 'so expensive to do business in America'. The real problem is that we are not using our TRADE TARIFFS to take into account that China is undervaluing their labor AND their currency.


RE: The real question remains....
By Reclaimer77 on 4/29/2011 6:11:50 PM , Rating: 2
quote:
So, let's stop with the bullplop that we have made it 'so expensive to do business in America'. The real problem is that we are not using our TRADE TARIFFS to take into account that China is undervaluing their labor AND their currency.


If only it were that simple.

Did you know it costs a billion more for Intel to build, equip, and operate a semiconductor manufacturing facility in the United States? One BILLION dollars! And we wonder why our tech jobs are going oversees?


RE: The real question remains....
By yomamafor1 on 4/29/2011 7:08:16 PM , Rating: 2
...and the Intel fab in Dalian, China costs $2.5B. Would you say it is more costly for Intel to build and operate a fab in China than in the States?

http://techgage.com/pr/intel_begins_construction_o...


RE: The real question remains....
By Reclaimer77 on 4/29/2011 7:24:03 PM , Rating: 2
Can you read? The CEO of Intel said that. So if that Dalian plant was built here, it would have cost $3.5B. I said a billion MORE, key word MORE.


RE: The real question remains....
By yomamafor1 on 4/29/2011 7:48:29 PM , Rating: 2
Perhaps you should include a link to your source next time.

But fair enough.


By YashBudini on 4/30/2011 11:24:23 PM , Rating: 2
Hey Spuke why didn't you ask for a reference?
(Like that question needs to be asked [rolling eyes])

Notice though none of these pro-corporate types ever go to these foreign countries to work and be exposed to their pollution. Is that because their health is priceless? I doubt they will answer.


RE: The real question remains....
By YashBudini on 4/29/2011 5:26:53 PM , Rating: 2
quote:
Because we've driven the cost of doing business here up so high it actually makes SENSE to move to China?

Says who? The lobbyists? We can't compete with any group earning a couple of bucks per day even if all regulations were to end immediately.

The day we as a society become that globally competitive is the day, like them, you will consider the cars you take for granted now as nothing but a pipe dream.

Please continue to blame everything only on the issues you've been instructed to address.


RE: The real question remains....
By ClownPuncher on 4/29/2011 7:54:44 PM , Rating: 2
Germany does quite well in global trade, export and manufacture.


By YashBudini on 4/29/2011 8:12:51 PM , Rating: 2
I can't tell if you don't get it or refused to. Global means third world across the globe. They are in the same predicament we are, along with all developed countries.


RE: The real question remains....
By Kiffberet on 5/3/2011 8:25:31 AM , Rating: 2
Excellent point!

The unions are very strong in Germany and they can still compete with China in manufacturing.

And they tax the be-jesus out of every company and person in the country. The difference is, the taxes go towards educating the population, infrastructure and welfare, instead of bombing Iraq and Afghanistan, tax breaks for the rich and paying billions a year in interest on sovereign debt.


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.


By DarkAvator on 4/28/2011 7:45:50 PM , Rating: 2
It very roots are...this expensive house is for the people...we're send soldiers in to kick you out. Than a week later, the "people's mayor" moves in. You can't even do charity work in China without registering with the people's govt...hand over the $$ and we will give you a nice receipt so that you can claim on your taxes. You want a follow-up on your charity $$$? Why would you want that...when you got a receipt already? It's the price of a ONE party govt with no checks and balance...a gang that runs a country. Heck..even with a 2 party system in the US...we already have corruption with lobbyist...international corporate interests.




By ekv on 4/28/2011 10:08:15 PM , Rating: 3
Several thoughts on this matter.

The demise of Chinese manufacturing (due to corruption) has been predicted ... though also countered.

http://www.chinalawblog.com/2010/06/on_the_demise_...

http://www.chinalawblog.com/2010/06/china_corrupti...

And then there is Transparency International's 'Corruption Perceptions Index'

http://en.wikipedia.org/wiki/Corruption_Perception...

where China doesn't do too bad (79th, vs U.S. @ 22nd).

On the flip side though, there are the news reports of corruption being prosecuted by the PRC

http://www.thaindian.com/newsportal/world-news/146...

http://www.thaindian.com/newsportal/world-news/ove...

http://www.usatoday.com/news/world/2010-03-09-Chin...

and various crack-downs on stock fraud, large construction projects, pension funds, prostitution, etc.

I don't think China sees themselves as particularly corruption prone, since the very definition of corruption depends on who is in power. E.g. just follow the "memo" from the grand-exalted poobah [Wen Jiabao?] and you're good to go. I disagree with that approach from an ethical perspective though.

See also

http://factsanddetails.com/china.php?itemid=304&ca...


By FaaR on 4/29/2011 12:46:58 AM , Rating: 2
Stop displaying your monumental ignorance by calling China a communist nation. It is not today, and it arguably never was to begin with. It's got an oppressive police state dictatorship for a government, with an oppressive capitalist economic system.

Other than in name, there's nary a trace of actual communism left in China.


By Fritzr on 4/29/2011 9:12:29 AM , Rating: 4
China's single political party is the "Communist Party"
The government of China declares themselves to be Communist.

Like Democrat & Republican, Democracy & Republic, these are convenient labels with social baggage attached that are used to mold perceptions.

There have been no national communist governments. There have been many, including China, Totalitarian governments using the Communist label in order to convince followers that they are a "people's" government.

Another Russian style "Communist" country is the People's Republic of Korea (North Korea) ruled by Dear Leader who effectively owns everything in the country & makes decisions for the communal good of the community...hence the label communism.

Pure Communism, like pure Democracy, works fine on a small scale & breaks down when the group gets too large to gather for a meeting.

China is trying to move the day to day decisions to lower levels of the bureaucracy by implementing state operated capitalism. However control of property remains with the state and "ownership" can be revoked by the stroke of a pen if the "private owners" displease a Party Member who has sufficient authority. (US calls this procedure Eminent Domain, so don't think the democracies are immune :) )

This problem has at it's root, lower level officials who wanted to live the grand lifestyle enjoyed by senior officials. The way to do that is to gather money and favors. Cut costs or fund phantom projects and pocket the difference is a proven method no matter what form the economy takes.


By Lerianis on 4/29/2011 4:24:27 PM , Rating: 1
Someone declaring themselves to be a Christian does not necessarily make it true, Fritzr.

You have to look at their ACTUAL ACTIONS. When you do that for China? They are a 'communist' country in name only. They are closer to elitist than Russia was under the Soviet/U.S.S.R. period.


Made in China
By TerranMagistrate on 4/28/2011 7:58:18 PM , Rating: 2
What a distinct way to squander 1 trillion USD. At least they got something to show for it unlike our government here in the U.S.




RE: Made in China
By chick0n on 4/28/2011 11:42:35 PM , Rating: 2
hey Berneke said everything works fine. can't you "See" the economy is "growing?"

after dumping trillions of dollars we are "seeing" hope ... w00t !


RE: Made in China
By pugster on 4/29/2011 10:18:36 AM , Rating: 2
Despite all that corruption, China was able to keep its budget in building its HSR. I rather have the US squandered 1 Trillion on its high speed rail rather than its military.


RE: Made in China
By callmeroy on 4/29/2011 12:10:58 PM , Rating: 1
Spoken like someone without a friggin clue....

What good would come from us building HSR for a 1 trillion investment ...I'm talking long term here...its too easy an answer to say "well it'll create jobs"....yeah short term it'll look awesome people will be working and a nice high tech rail system will be built. What happens when the rail is built? How do you recover that 1 trillion investment? Who will patronize the rail system that has to have ridiculously high ticket prices to cover its ENORMOUS expense...especially in a nation that is practically in love with the automobile?

That's what gets us into trouble all the time....this mentality of "Short term return on a very long term investment"...makes no logical sense why you'd want to invest in something that will make no money and only cost money to maintain.

I'd rather have the US not spend 1 trillion at ALL personally...considering we can't afford anything right now.


RE: Made in China
By lightfoot on 4/29/2011 7:12:26 PM , Rating: 2
What we really should invest 1 Trillion dollars in is fixing the infrastructure that we already have. I mean honestly how many bridges must collapse, how many people must die, before we get a clue?

We should take care of the toys we already have (highways, bridges, tunnels, sewers, gas pipelines, water mains, power plants, power grid, refineries etc) before we even start considering another multi-trillion dollar pork project.

And for perspective, $1 trillion wouldn't even make a dent in fixing what is already falling apart.


186mph is still pretty good
By PrinceGaz on 4/28/2011 10:06:39 PM , Rating: 5
Running existing high-speed lines at 186mph (300km/h) is still a lot better than anything we're doing in Britain as privatisation scuppered any hopes of a high-speed network here, leaving us with an out-dated rail network high-speed rail network compared with most of continental Europe.

218mph (350km/h) which China has dropped down from was pretty much cutting edge speeds so it's no big deal really. They've probably done an assessment and decided if shoddy work has been done, that the track is still safe for 300km/h running (186mph), which is 60mph more than the highest speed here in Britain (excluding the parts of the route from the Channel Tunnel to London passed for 140mph).




RE: 186mph is still pretty good
By gregpet on 4/29/2011 1:42:50 PM , Rating: 3
Except that the Chinese stole the technology from the Japanese. Of course they said that they 're-engineered' the trains to go faster...guess not!


Schadenfreude...
By Whedonic on 4/29/2011 1:07:58 AM , Rating: 3
I feel kinda horrible that part of me is doing a happy dance that China's long standing corruption and shoddy business practices are coming back to bite them big time with this. The feeling bad part is because like the article mentioned, the average Chinese person is just getting screwed here. Hopefully this may prompt some turn towards accountability in Chinese business and gov't?




RE: Schadenfreude...
By bug77 on 4/29/2011 4:58:38 AM , Rating: 2
quote:
... feeling bad part is because ... the average Chinese person is just getting screwed here


Kinda comes with the territory when you go along with an oppressive regime.


RE: Schadenfreude...
By name99 on 4/29/11, Rating: -1
RE: Schadenfreude...
By YashBudini on 4/29/2011 5:35:25 PM , Rating: 2
quote:
All the US gets is a transfer of money from the rest of us to the top .1%.

You do realize that all the descendents of Joseph McCarthy, many of whom live here, will unleash all the hounds and label you a communist in no time.

quote:
As far as I can tell the two situations are substantially IDENTICAL

Well only in comparison to 2 single events. Overall though the US screwing of the middle class is far more diversified than China, and with more government rewards as well.

quote:
in China probably at least a few people will actually go to prison, perhaps even be sentenced to death. Which country has more true justice in this regard?

Neither wins, whether it's jail here or death there those are the scapegoats. The real cause will always buy their way out justice.


so that explains it...
By kleinma on 4/28/2011 6:53:08 PM , Rating: 5
So china hacked the PSN in order to use 70 million peoples credit card numbers to finish paying for this project. It all makes perfect sense now!




Chinese always cut corners...
By GnerdLife on 4/29/2011 11:59:41 AM , Rating: 4
Even if the path is a straight line, the Chinese will find a corner to cut...




Made in China
By ObamaisaSCUMBAG on 4/29/2011 9:55:01 PM , Rating: 2
Do they label their stuff with the infamous "Made in China" label?




RE: Made in China
By YashBudini on 4/29/2011 10:24:08 PM , Rating: 2
Who knows? Do you wear the "Made by Faux News" label?


Corruption in your vagina?
By vapore0n on 4/29/2011 8:20:55 AM , Rating: 2
Corruption happening on a 1T$ project that would span for multiple years? More likely than you think.

This is why we cant have nice things. People get greedy, things get out of control, then we have a project that is late, over budget, and poor quality.
See Boston's Big Dig.

I just wonder how we managed to get so far this day of age.




By 91TTZ on 4/29/2011 11:00:53 AM , Rating: 2
I think the author got that mixed up. It's most likely concrete rail ties (the ones that we normally see made of wood soaked in creosote) and not concrete rails. Rails are made of steel.




Chinese Phishing Scam
By schlatts on 4/29/2011 1:23:00 PM , Rating: 2
quote:
And in March government officials also found scores of fake invoices, which resulted in the government paying for phantom work.


Sheesh, you would have thought the government officials would have been smart enough to watch out for Chinese Phishing scams...




not surprised
By rika13 on 5/4/2011 7:08:17 AM , Rating: 2
SHODDY CONSTRUCTION IN A COMMUNIST COUNTRY?! OMG!!




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