by Ryan McMaken, mises.org
The Chinese government is desperate to keep its bubble economy going, and one way it’s doing that is by spending on massive infrastructure projects. The “China Bubble,” built on huge construction projects such as subways, skyscrapers, highways, and housing, continues to astound with the sheer numbers involved, from the height of the skyscrapers to the miles of track laid.
This sort of spending has become a central part of the Chinese economy:
In the last few years, cities’ efforts have helped government infrastructure and real estate spending surpass foreign trade as the biggest contributor to China’s growth. Subways and skyscrapers, in other words, are replacing exports of furniture and iPhones as the symbols of this nation’s prowess.
This naturally has many political uses, from full employment to rising GDP growth, as noted by Doug French in 2011:
However, Chinese economic growth has exploded on the shakiest of financial systems, Carl E. Walter and Fraser J.T. Howie point out in Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise. The country’s central planners do their best to keep as many of the 1.3 billion people employed as they can; building vacant cities and dozens of large infrastructure projects along with releasing eye-popping ”official” GDP numbers.
To keep this strategy going indefinitely, China is looking to expand its infrastructure well beyond its borders and even into other continents. The Independent today reports that China has announced plans to build a train to the United States. That is, the Chinese state plans to build a 13,000 km railway from China to Alaska, and down into the lower 48. Whether this can possibly be done in an economical fashion is completely irrelevant, of course. It’s another jobs program and monument to the Chinese state.
The announcement for a inter-continental railway comes only a few days after the Chinese government’s announcement that it is looking to fund a transcontinental railway in Africa. According to Reuters:
China will increase credit lines to Africa by $10 billion and will boost the China-Africa Development Fund by $2 billion, bringing it to a total of $5 billion, Xinhua said. It provided no details of the timeframe.
Li “depicted a dream that all African capitals are connected with high-speed rail, so as to boost pan-African communication and development,” the report said. As China has advanced technologies in this area, Li said China was ready to work with Africa “to make this dream come true”.
Practically speaking, the African railroad makes a little more sense than the Alaska one since China has vast financial interests in Africa and obtains many natural resources from the African hinterlands. Nevertheless, the fact that such a railroad would be thoroughly unprofitable and frankly impossible without immense subsidies from the Chinese state means we can see this as just another Chinese state project as well.
While I’m no expert on Africa’s economic development, we can guess that transcontinental railroads in Africa are uneconomical. How can we guess this? Well, if they were economical, they wouldn’t need Chinese underwriting for one, and secondly, we can see this in the fact that Africa is already very light on railroads in general. The map at left, if at all accurate, shows what we might expect: The only area of the continent that appear to have any significant amount of railroad development is in the south and far southeast of the continent, where there has been much economic growth in recent decades. We get a similar picture by comparing this image to an image of city lights at night in Africa. Most of the continent is dark. A working economic model for railroad construction would need first a number of well-developed local railways, and only once large regional system are profitable, would it make sense to connect them.
What China is proposing is building railroads across vast uninhabited or thoroughly undeveloped areas. We know from the experience of the United States that this is not a recipe for sustainable infrastructure.
As I wrote here on the history of the American transcontinentals, the American railroads made no economic sense either. From a military and nationalistic perspective, they made sense because they made politicians look good, but the railroads never made money for the first 25-30 years of their existence, and required massive infusions of cash from the federal government to stay afloat.
For the government, they were a huge success, since even people who claim to be for small government today sing the praises of the transcontinentals as some sort of grand achievement. It would have made much more sense to simply wait 30 years until it became economical for the private sector the build the railroads itself.
Obviously, China has no interest in hearing such boring and unpatriotic pronouncements about railroads and economics. Major geopolitical issues are in play. Better yet, for the Chinese state, new endless infrastructure projects keep the bubble going.
As the government-inflated railroad bubble in the United States contributed to the Panic of 1873, we can also look to these latest railway plan from the Chinese government as just another manifestation of the Skyscraper Index at work in China. Perhaps, instead of judging the progress of an unsustainable bubble by the number of floors in a new skyscraper, we might look instead to the number of miles of railroad track laid.