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Rail helps China back on track

What a difference a year makes for China’s high-speed rail ambitions, and for the Chinese economy.

After being abandoned and left to lie dormant, the scrubby farm fields around Bazhou in northern China have sprouted rail bridges, raised track beds and neat rows of workers’ dormitories. The fields are well on their way to becoming a link in the country’s rapidly expanding high-speed rail network.

It is a sharp turnround from late 2011 when China slammed the brakes on its rail programme, suspending almost all new investment after a bullet train crash killed 40 people and raised questions about the quality of the track that had already been laid.

That revival of rail investment and infrastructure spending, which started around the middle of last year, was a crucial factor in China’s economic recovery. When Beijing reports growth figures tomorrow, it is expected to show the economy accelerated in the fourth quarter, breaking a run of nearly two years of slower growth.

Full-year growth in 2012 probably fell short of 8 per cent, the lowest in more than a decade, but the momentum in the final quarter has fuelled investor optimism that China will again be the world’s strongest-performing big economy this year, helping to make up for the struggles in the US and Europe.

“The end of 2011 was probably the worst in terms of the amount of money spent on infrastructure. It nearly came to a halt,” says Ken Peng, an economist with BNP Paribas in Beijing. “The bounceback in infrastructure investment was clearly the main driver of the rebound.”

Investment accounts for nearly half of China’s gross domestic product, making it as big an engine of growth as consumption and exports combined. Railway construction is only about 2 per cent of that but its importance is far greater, stoking demand for steel and helping shape business sentiment.

A small city a little more than an hour’s drive from Beijing, Bazhou was at the sharp end of the cancellation of rail projects in 2011. It was meant to serve as a station on a line connecting the cities of Tianjin and Baoding, but the workforce laying the track fell overnight from 600 to 20.

“When they stopped building rail it led to thousands of companies, including state-run steelmakers, cutting production,” says Wang Mengshu, deputy chief engineer at the China Railway Tunnel Group. “These companies appealed to the central authorities and said, ‘if we don’t get back to building rail, we’ll be finished and workers won’t get paid’.”

The government was initially in no rush to restart construction. In December 2011 it published a report that blamed dozens of officials and businesses by name for causing the deadly bullet train crash through lax application of safety standards. Railway plans also suffered aftershocks from the corruption investigation that led to Liu Zhijun’s removal from office as railway minister two years ago.

But in early 2012, as the depth of the economic slowdown became clearer, Wen Jiabao, China’s premier, signalled it was time for rail investment to resume. He visited train manufacturers and railway construction sites, giving the industry a vote of confidence.

That was quickly translated into budget increases for the railway ministry, from Rmb400bn at the start of the year to more than Rmb600bn ($96.5bn) by the end of the year. Investment shot up in the second half, rising 80 per cent from a year earlier in September and October.

With high-speed trains now running a little more slowly than before, with few apparent glitches, Mr Wang says China’s railway boom is set to run for years to come. “Our rail system is still far from sufficient and building more high-speed lines is a necessity.”

He noted that China had 93,000km of track for a population of 1.3bn, whereas the US has nearly three times that amount of track – 230,000km – for a population that is a quarter of China’s, at 300m.

Construction has fallen quiet again recently in Bazhou but that is because of the deep winter freeze in the country’s north. A security guard at the foot of a 30m-high rail bridge that had been built just before the cold weather arrived said that workers were expected to return in full force after the Chinese lunar new year festival in February.

The railway boom has also started to change the daily commutes of urban residents throughout China, with central planners approving more than 60 underground and light-rail lines last year. Beijing this month opened four new or extended lines, which were brimming with passengers within hours.

Looked at purely from the perspective of Chinese growth, though, there is one big disadvantage. As the size of the rail network expands, the rate of increase in new investment will inevitably decline because so much has already been built. Mr Peng says that 2013 could in fact mark the peak for rail ­construction.

“Right now, this is the strongest moment for investment,” he says. “But later on this year we will start to see some constraints. Growth will slow.”

(From FT)

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