If you want more consumption, increase investment

The New York Times:

CHANGSHA, China — The cavernous rail station here for China’s new high-speed trains was nearly deserted when it opened less than four years ago.

Not anymore. Practically every train is sold out, although they leave for cities all over the country every several minutes. Long lines snake back from ticket windows under the 50-foot ceiling of white, gently undulating steel that floats cloudlike over the departure hall. An ambitious construction program will soon nearly double the size of the 16-platform station.

Just five years after China’s high-speed rail system opened, it is carrying nearly twice as many passengers each month as the country’s domestic airline industry. With traffic growing 28 percent a year for the last several years, China’s high-speed rail network will handle more passengers by early next year than the 54 million people a month who board domestic flights in the United States.

Li Xiaohung, a shoe factory worker, rides the 430-mile route from Guangzhou home to Changsha once a month to visit her daughter. Ms. Li used to see her daughter just once a year because the trip took a full day. Now she comes back in 2 hours 19 minutes.

That’s a huge boost to consumption, and to living standards.

Business executives like Zhen Qinan, a founder of the stock market in coastal Shenzhen, ride bullet trains to meetings all over China to avoid airport delays. The trains hurtle along at 186 miles an hour and are smooth, well-lighted, comfortable and almost invariably punctual, if not early. “I did not think it would change so quickly. High-speed trains seemed like a strange thing, but now it’s just part of our lives,” Mr. Zhen said.

China’s high-speed rail system has emerged as an unexpected success story. Economists and transportation experts cite it as one reason for China’s continued economic growth when other emerging economies are faltering. But it has not been without costs — high debt, many people relocated and a deadly accident. The corruption trials this summer of two former senior rail ministry officials have cast an unfavorable light on the bidding process for the rail lines.

Unexpected?  This probably refers to all the articles talking about the project being a boondoggle. Indeed it appears as an example in the Wikipedia entry on “white elephants.”

Here’s more from the NYT:

The high-speed rail lines have, without a doubt, transformed China, often in unexpected ways.

For example, Chinese workers are now more productive. A paper for the World Bank by three consultants this year found that Chinese cities connected to the high-speed rail network, as more than 100 are already, are likely to experience broad growth in worker productivity. The productivity gains occur when companies find themselves within a couple of hours’ train ride of tens of millions of potential customers, employees and rivals.

“What we see very clearly is a change in the way a lot of companies are doing business,” said Gerald Ollivier, a World Bank senior transport specialist in Beijing.

Productivity gains to the economy appear to be of the same order as the combined economic gains from the usual arguments given for high-speed trains, including time savings for travelers, reduced noise, less air pollution and fuel savings, the World Bank consultants calculated.

Companies are opening research and development centers in more glamorous cities like Beijing and Shenzhen with abundant supplies of young, highly educated workers, and having them take frequent day trips to factories in cities with lower wages and land costs, like Tianjin and Changsha. Businesses are also customizing their products more through frequent meetings with clients in other cities, part of a broader move up the ladder toward higher value-added products.

Li Qingfu, the sales manager at the Changsha Don Lea Ramie Textile Technology Company, an exporter of women’s dresses and blouses, said he used to travel twice a year to Guangzhou, the commercial hub of southeastern China. The journey, similar in distance to traveling from Boston to Washington, required nearly a full day in each direction of winding up and down mountains by train or by car.

He now goes almost every month on the punctual bullet trains, which slice straight through the forested mountains and narrow valleys of southern Hunan province and northern Guangdong province in a little over two hours, traversing long tunnels and elevated concrete viaducts in rapid succession.

“More frequent access to my client base has allowed me to more quickly pick up on fashion changes in color and style. My orders have increased by 50 percent,” he said.

China relocated large numbers of families whose homes lay in the path of the tracks and quickly built new residential and commercial districts around high-speed train stations.

The new districts, typically located in inner suburbs, not downtown areas, have rapidly attracted large numbers of residents, partly because of China’s rapid urbanization. Enough farm families become city dwellers each year to fill New York City, part of a trend visible during a series of visits to the Changsha high-speed train station over the last four years.

When the station opened at the end of 2009 in an inner suburb full of faded state-owned factories, the neighborhood was initially silent. But by 2011, nearly 200 tower cranes could be counted building high-rises during the half-hour drive from downtown Changsha to the high-speed rail station. On a morning last month, only several dozen tower cranes were visible along nearly the same route. But a vibrant new area of apartment towers, commercial office buildings and hotels had opened near the train station.

China’s success may not be easily reproduced in the West, and not just because few places can match China’s pace of urbanization. China has four times the population of the United States, and the great bulk of its people live in the eastern third of the country, an area similar in size to the United States east of the Mississippi.

“Except for Boston to Washington, D.C., we don’t have the corridors” of high population density that China has, said C. William Ibbs, a professor of civil engineering at the University of California, Berkeley.

I read this article while riding on America’s “high speed” rail, the Acela.  The train was an hour late leaving NYC, and then took 5 more hours to reach Boston.  A Chinese train would do the trip in an hour.  The service in the train station in NYC was beyond appalling—Soviet levels of rudeness and incompetence.  If you were thirsty on the train, you could line up for 45 minutes at a cafe car with one employee—an 80 year old woman. (On the Chinese trains attractive young stewardesses walk around handing out free bottles of water.)  The lights on the Acela train only worked part of the time.  The parking lot in Boston was completely dysfunctional.  The escalator didn’t work.  And why do they check tickets in NYC before boarding trains? I’ve never seen that anywhere else in the world.

Privatize Amtrak now!!

China’s high-speed rail program has been married to the world’s most ambitious subway construction program, as more than half the world’s large tunneling machines chisel away underneath big Chinese cities. That has meant easy access to high-speed rail stations for huge numbers of people — although the subway line to Changsha’s high-speed train station has been delayed after a deadly tunnel accident, a possible side effect of China’s haste.

New subway lines, rail lines and urban districts are part of China’s heavy dependence on investment-led growth. Despite repeated calls by Chinese leaders for a shift to more consumer-led growth, it shows little sign of changing. China’s new prime minister, Li Keqiang, publicly endorsed further expansion of the 5,900-mile high-speed rail network this summer. He said the country would invest $100 billion a year in its train system for years to come, mainly on high-speed rail.

.  .  .

The double-digit annual wage increases give the Chinese enough disposable income that domestic airline traffic has still been growing 10 percent a year. That is the second-fastest growth among the world’s 10 largest domestic aviation markets, after India, which now faces a slowdown as the fall of the rupee has made aviation fuel exorbitantly expensive for air carriers there.

Critics of China’s high level of investment often forget about the rapid growth in Chinese wages, which will lead to rapid growth in demand for housing, transport, energy, etc. in the years ahead.

Congratulations to my mother-in-law, Shuqiong Zhou, who (with her late husband) helped develop the communications technology for China’s rail system.

PS.  Paul Krugman took Amtrak to Boston earlier on the same day, and apparently had a less bad trip.

PPS.  No country capable of successfully pulling off a project like this ever got stuck in the “middle income trap.”  Won’t happen.  (And please don’t mention the Soviet space program–rockets are child’s play compared to continent-size, high quality, high speed rail.)

PPPS.  Implications for the US?  None.  We could not do what China has done.

PPPPS.  Coming up next—are Chinese “ghost towns”  myth?


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24 Responses to “If you want more consumption, increase investment”

  1. Gravatar of If you want more consumption, increase investment | FindMeO If you want more consumption, increase investment | FindMeO
    1. October 2013 at 14:36

    [...] Link: If you want more consumption, increase investment [...]

  2. Gravatar of John Hall John Hall
    1. October 2013 at 14:37

    They check train tickets in DC too.

  3. Gravatar of Geoff Geoff
    1. October 2013 at 17:11

    If you want to reduce social consumption, convince a bunch of sociopaths to initiate coercion against innocent people in order to monopolize the monetary order.

  4. Gravatar of ssumner ssumner
    1. October 2013 at 18:41

    John. Are they insane?

  5. Gravatar of johnleemk johnleemk
    1. October 2013 at 20:59

    Re Amtrak checking tickets before boarding, I am pretty sure that that is because of security reasons. At least whenever I’ve been asked for my ticket prior to boarding, I’ve also been asked for my ID. I’ve taken Amtrak a tonne between DC and Boston, and that’s always been the case as far as I can recall. It’s absurd.

  6. Gravatar of Brett Brett
    1. October 2013 at 21:30

    PPS. No country capable of successfully pulling off a project like this ever got stuck in the “middle income trap.” Won’t happen. (And please don’t mention the Soviet space program–rockets are child’s play compared to continent-size, high quality, high speed rail.)

    Not the space program, but Soviet Industrialization was a similar scale feat of infrastructure. Mobilizing for infrastructure like this puts you ahead of about 90% of the rest of the Poor and Middle-Income Countries*, but it’s not an escape from Middle Income Traps. That will only come if they continue to avoid having the SOEs dragging the rest of the country into stagnation.

    * I’m looking at you, Brazil

    Fortunately, their size and economic diversity gives them some advantages. They’re less likely to end up dominated by a set of industrial export companies (South Korea), or with a two-tiered economy (Japan).

    PPPS. Implications for the US? None. We could not do what China has done.

    That’s because we did it 140-100 years ago. And railroad transit isn’t the Life or Death of Communities thing that it was back then, when your only alternative to rail transit was super-slow wagon trains over land (boats if you were on the sea or navigable rivers). In democratic societies with more local control, stuff tends to get a ton more scrutiny unless it’s absolutely, immediately necessary.

  7. Gravatar of falcon2 falcon2
    1. October 2013 at 22:47

    Critics against the Chinese HSR system are often anti-China in their core, even up to this date, a lot of Hong Kong people still oppose and ridicule the Chinese HSR system.

    However, with that said, high speed rail vs normal rail shows the increasing wealth gap within China. One can observe the differences in social class and manners between passengers of these two rail systems. One represents the emergence of China but the other represents potential unrests.

  8. Gravatar of J.V. Dubois J.V. Dubois
    2. October 2013 at 01:43

    Scott: You may be aware that Matt Yglesias wrote about insane practice of train boarding in three linked articles. Unlike you he was inspired by his experience of train travel in Europe – but I think almost any country can be a huge inspiration for Amtrak.

    The last article contains links to previous ones as well as response from Amtrak why are their boarding practices nuts: http://www.slate.com/blogs/moneybox/2013/07/17/amtrak_s_unpersuasive_response_on_boarding_procedures.html

  9. Gravatar of Our Chinese Future | Brown Pundits Our Chinese Future | Brown Pundits
    2. October 2013 at 01:56

    [...] If you want more consumption, increase investment [...]

  10. Gravatar of Saturos Saturos
    2. October 2013 at 03:24

    Wonderful.

  11. Gravatar of Jonathan Miller Jonathan Miller
    2. October 2013 at 05:05

    You say “Implications for the US? None.”, but isn’t this exactly the sort of thing we last did 60ish years ago when Eisenhower built the national highway system? I am not saying that we should follow China’s footsteps exactly (for example, going with high speed trains), but we should consider that the nation has changed a lot in 60 years and such an effort should be done again.

  12. Gravatar of ssumner ssumner
    2. October 2013 at 05:44

    johnleemk, It would be absurd even if done for security reasons. The terrorists would simply get on the train on a different stop. But it’s not for security purposes, you need show no ID in NYC, just the ticket. It’s completely insane.

    And there are actually liberals in America who believe Amtrak is capable of running a high speed rail system.

    Brett, No, Soviet industrialization is nothing like China’s high speed rail. It was extremely primitive by comparison.

    falcon2, Actually the poorer classes are riding HSR in increasing numbers as the article indicated. That’s because wages for the working class have been soaring at double digit rates. So the gap is actually closing.

    JV, So he says I’m right? They have no coherent explanation.

    I don’t understand the “unlike you” comment. I also enjoy rail travel in Europe, but that has no implications for the US. We are not capable of building that sort of system.

    Jonathan, Even by the end of the interstate era we had lost the ability to build something like that. In Boston we recently spent $16 billion building a single mile of depressed interstate highway. We’ve lost the ability. The government would not even be able to purchase the right of way for such a system. In America that would be essentially impossible. So they would cut corners, and it would end up being low speed rail, like the Acela.

  13. Gravatar of Jonathan Miller Jonathan Miller
    2. October 2013 at 06:16

    With the automated car technology apparently around the corner, I am not suggesting that high speed rail is the solution for us.

    However, infrastructure spending for high speed internet in addition to spending on infrastructure to improve the success/adoption of automated cars, should they prove to be feasible in the near future, does seem like a winner.

  14. Gravatar of J.V. Dubois J.V. Dubois
    2. October 2013 at 06:56

    Scott: Yeah, he agrees with you on this. And sorry for “unlike you” I realized that it may not be properly used only after sending the post. Take it as a mistake of non-native speaker. The meaning behind was “instead” like in “Yglesias also has experience with functional trains but instead of you comparing Amtrack experience to your experience in China he was inspired by his train travel in Europe”.

    PS: I understand that there may not be reasonable to have the same rail system in US in general. But I am sure that there is still space to improve, like with ticket checking and train seating.

  15. Gravatar of Steve Roth Steve Roth
    2. October 2013 at 08:17

    Let’s hear it for big government and central planning!

  16. Gravatar of Steve Roth Steve Roth
    2. October 2013 at 08:20

    >Privatize Amtrak now!!

    Maybe I don’t understand. Is China’s high-speed rail system a private enterprise?? I don’t think so…

  17. Gravatar of Y.Alekseyev Y.Alekseyev
    2. October 2013 at 09:09

    @ Steve Roth: exactly.

    Ssumner: You write about the roaring success of a state-run investment program on an unimaginable scale and the conclusion is… to privatize?!? To what end? There might be less waste and the system might run better but if there is one thing you won’t get with privatized passenger rail is more investment. There are absolutely zero contrary examples in the world.

    Time to take the ideological blinders off and admit it that for projects like these, there is really nothing better than a concerted push by the governement with a spending (investment!) spigot turned all the way on.

  18. Gravatar of jackjohnson jackjohnson
    2. October 2013 at 09:41

    “If you were thirsty on the train, you could line up for 45 minutes at a cafe car with one employee—an 80 year old woman. (On the Chinese trains attractive young stewardesses walk around handing out free bottles of water.)”

    what’s Chinese for “hubba hubba”?

    seriously, this post is ridiculous.

  19. Gravatar of myb6 myb6
    2. October 2013 at 11:01

    Steve Roth and Y Alekseyev,

    I’m sure Sumner’s aware Chinese HSR is a massive gov’t project. I think the point is that the desirable level of government involvement is related to the quality of government institutions.

    High-skill, uncorruptible Swedish bureaucrats -> gov’t should provide social services.

    Brilliant Mandarins -> gov’t should build HSR.

    Revolving door bureaucrats, political gridlock -> should be privatized.

  20. Gravatar of Lawrence D’Anna Lawrence D'Anna
    2. October 2013 at 20:24

    Scott: please explain why we are incapable of it.

  21. Gravatar of Philippe Philippe
    3. October 2013 at 05:36

    Scott,

    isn’t the Chinese high-speed rail entirely owned and operated by a government corporation?

  22. Gravatar of ssumner ssumner
    3. October 2013 at 06:15

    JV, That’s why I want to privatize the system in the US.

    Steve and Y, You don’t understand, it’s precisely because I don’t want the US to build a Chinese style rail system that I want to privatize the system in the US. If we privatize the system we will avoid wasting hundreds of billions of dollars on a high-speed rail system that would not work in the United States.

    Lawrence, There are many reasons. One of the most important is that the US would be unable to put together the right-of-way necessary to build the high-speed rails. That is why this sort of system wasn’t even proposed in the Northeast corridor, which is the only part of the United States where would make sense. It wasn’t even part of the Obama administration’s stimulus package. Instead they proposed a few rail lines in places where nobody would ride them.

    Philippe, Yes, and it loses enormous amounts of money.

  23. Gravatar of jackjohnson jackjohnson
    3. October 2013 at 09:13

    ssumner: “You don’t understand, it’s precisely because I don’t want the US to build a Chinese style rail system that I want to privatize the system in the US. If we privatize the system we will avoid wasting hundreds of billions of dollars on a high-speed rail system that would not work in the United States.”

    I withdraw my previous comment (2 Oct at 9:41am). This post is not ridiculous but inscrutable and, even on clarification, baffling. There’s been a large investment of public money in existing lines. So privatize them at a loss and then watch as…what? The system shrinks to a handful of profitable lines? Remaining right-of-ways are re-purposed? Amtrak could go into the black by redeveloping or leasing right-of-ways itself! Sure – but have you considered all of the externalities involved?

    Self-driving cars might change the whole game, including the practice of private car ownership. Most Americans would surely prefer something like that to train transport. And maybe this is reason enough to hold off on significant rail investment. But I don’t see any serious hope for *rail* via privatization.

  24. Gravatar of ssumner ssumner
    3. October 2013 at 16:31

    jackjohnson, There is no hope for rail transport in the United States. That’s why I don’t want the government wasting a lot of money on rail transport. The private sector could probably run the trains in the Northeast corridor at a profit and provide less horrible service. They would drop service throughout the rest the country, which would be a very good thing, even accounting for the externalities such as air pollution. There are much more cost-effective ways of addressing those externalities. If we are serious about environmental problems like global warming we need a carbon tax, not pipe-dreams like high-speed rail in America.

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