singapore hotel: China Railways Trailing 1880 U.S. Show Spending Scope: Economy

After $5 trillion in spending on

infrastructure over the past five years, China still needs more.

The nation struggles to provide drinkable tap water,

millions of people live in shantytowns and the length of the

rail network is yet to match that of the U.S. in 1880.

While investors focus on ghost cities and unneeded

factories as evidence of overinvestment, gaps in infrastructure

will allow the spigot of state spending to be open for years to

come, according to HSBC Holdings Plc. That may serve as a safety

net, limiting the scale of any slowdown during the economic

restructuring that Communist Party leaders are set to map out at

a meeting in Beijing next month.

“China still has plenty of room to keep building useful

bridges before building bridges to nowhere,” said Qu Hongbin,

Hong Kong-based chief China economist at HSBC. “Even after five

or six years of massive infrastructure development, China’s

infrastructure is only at a level similar to that of Japan in

the 1960s or 1970s.”

Installed in March, President Xi Jinping and Premier Li Keqiang have already used infrastructure spending to support

growth in what Bank of America Corp. described as a “mini

fiscal stimulus” this year. After expansion cooled during the

first and second quarters, the State Council rolled out measures

targeting city infrastructure such as drainage systems, waste-water treatment, subways and light rail, roads and bridges,

power grids, railway construction and shantytown redevelopment.

Growth Report

The effects may be visible in tomorrow’s report on third-quarter expansion from the National Bureau of Statistics, which

will say that the economy grew 7.8 percent from a year earlier,

based on the median estimate of 46 analysts surveyed by

Bloomberg News.

Any reading below the government’s 7.5 percent annual

target would stoke anticipation of fresh stimulus measures. Li

said last week that growth exceeded 7.5 percent in the first

nine months of the year, following a report of 7.6 percent

expansion in the first half.

Data tomorrow will also show that authorities maintained

the pace of fixed-asset investment excluding rural areas at 20.3

percent for the first nine months of the year, equal to the

January-August pace, according to the median economist estimate.

The statistics bureau also reports September figures for

industrial production and retail sales.

Investment in national railways and joint-venture railways

rose 12.2 percent to 327 billion yuan in the first nine months

of 2013 from a year earlier, according to a report in today’s

Economic Information Daily, a newspaper of the official Xinhua

News Agency.

FDI Report

Separately, China’s inbound, non-financial foreign direct

investment rose 4.9 percent in September from a year earlier,

following a 0.6 percent gain in August, Commerce Ministry data

showed today. In Singapore, non-oil exports in September fell

1.2 percent from a year earlier as manufacturers shipped fewer

electronics and pharmaceuticals, a report showed.

Elsewhere in the world, retail-sales figures are due in the

U.K., Sweden and the Netherlands report on September

unemployment and the U.S. will see weekly reports on jobless

claims and the Bloomberg Consumer Comfort Index.

China’s fixed-asset investment in infrastructure totaled

33.1 trillion yuan in the five years through August, based on

data compiled by Bank of America. The figures include spending

on transportation, such as roads and railways, as well as

utilities and water facilities.

Subway Absence

The gaps in infrastructure range from the absence of a

subway system in Lanzhou, a city of about 3.6 million and the

capital of northwestern Gansu province, to passengers crushed

together during peak hours on Beijing underground lines.

The average Internet speed of 1.7 megabits per second

ranked 98th worldwide and compared with 14.2 megabits in No. 1-rated South Korea in the first quarter of this year, according

to Akamai Technologies Inc. (AKAM), which provides services to speed

delivery of Web content.

“I hate the traffic jams,” Li Xuejun, a taxi driver, said

last month in Jinan, the capital of Shandong province, as cars,

buses, trucks and motor-tricycles jostled for space. Li said he

was looking forward to the completion of the West Second Ring

highway bridge, an 8-kilometer (5-mile) highway completed this

month with a price tag of 2 billion yuan.

China is putting about 5,500 kilometers of railway lines

into operation this year, bringing the total length to 100,000

kilometers, Xinhua reported in August. The government said in

July that it plans to grant ownership and operating rights on

some city and regional railways to local government and private

investors.

Sun’s Goal

In the early 20th century, Sun Yat-sen, Republican China’s

first president after the fall of the Qing Dynasty, set a goal

of 160,000 kilometers. In the U.S., the rail network reached

about 148,000 kilometers by 1880 and peaked at 409,000 in 1916,

shrinking to 224,000 kilometers in 2011, according to the

Association of American Railroads.

In Beijing, a city known for architectural signature pieces

such as the Bird’s Nest stadium built for the 2008 Olympics,

people died in flooding last year because the city’s drainage

system was inadequate to handle the biggest rainstorm in six

decades. The downpour killed 77 and submerged vehicles and

flooded homes, resulting in about 11.6 billion yuan in losses,

according to Xinhua.

Drinking Water

China has pledged to ensure the supply of safe drinking

water by 2015 to more than 100 million people in rural areas who

don’t have access to it now, Xinhua reported in August.

At Credit Suisse Group AG, economist Dong Tao says that the

new Communist Party leadership regards infrastructure spending

as a “stabilizer” rather than the “accelerator” used in the

global financial crisis, when a 4 trillion yuan stimulus package

helped reverse the nation’s slump.

Over coming quarters, officials will jab the pedal as

needed to keep growth around the 7.5 percent to 8 percent level,

according to Tao, chief regional economist for Asia excluding
Japan.

Potential obstacles to infrastructure spending include

government debt that analysts at banks including JPMorgan Chase

Co. say is approaching levels that helped trigger turmoil in

other economies.

The National Audit Office is working on the broadest review

of government borrowing in two years, with former Finance

Minister Xiang Huaicheng saying in April that local-government

finance vehicles may hold more than 20 trillion yuan of debt,

almost double the official tally from 2010.

Bridge Collapse

Some of the nation’s design and construction failures have

been deadly. In August 2012, a new $300 million, eight-lane

suspension bridge collapsed in the northeastern city of Harbin,

sending four trucks tumbling and leaving three dead. The high-speed rail system suffered a blow from a collision in July 2011

that killed 40 people. Former Railway Minister Liu Zhijun was

given a suspended death sentence this year for abuse of power

and taking bribes.

China also has overinvestment in some areas. The government

on Oct. 15 posted a plan by the State Council to cut excess

capacity in steel, cement and aluminum.

Some municipalities have turned into ghost cities after

local governments failed to attract residents to fill new towers.

A prime example is Ordos, Inner Mongolia, where cranes stood

silently above half-finished developments in July after a

building spree that included an expanded airport, a sports

stadium and high-rise apartments surrounding an artificial lake.

Japanese Debt

Underscoring potential risks, Japan’s administrations ran

up the nation’s debt in the 1990s with repeated supplementary

budgets that failed to stop the economy from sinking into

deflation.

“China is quite different from the 1990s in Japan,” said

Changyong Rhee, chief economist at the Asian Development Bank.

Especially in the nation’s western regions, “huge potential”

remains for investment to increase productivity and incomes and

reduce inequality, Rhee said.

At the same time, Rhee said he’s concerned that China’s

spending is led by local governments through an expansion of

credit, with the risk that investment decisions are made for

political reasons and project quality suffers. He said that the

central government is trying to tackle that issue.

–Paul Panckhurst, Shen Hu, with assistance from Zhou Xin and

Nerys Avery in Beijing, Jasmine Wang in Hong Kong, Tim Catts in

New York, Toru Fujioka in Tokyo and Ailing Tan and Rina Chandran.

Editors: Paul Panckhurst, Scott Lanman

To contact the editor responsible for this story:

Paul Panckhurst at

ppanckhurst@bloomberg.net

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Beijing Subway System

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Tomohiro Ohsumi/Bloomberg

Commuters disembark from a train while others wait to board at a subway station in Beijing, China.

Commuters disembark from a train while others wait to board at a subway station in Beijing, China. Photographer: Tomohiro Ohsumi/Bloomberg

Oct. 17 (Bloomberg) — Bloomberg’s Christine Hah reports on the crowded Beijing subway system, the oldest metro in mainland China, which transports over 10 million passengers each day.

After about $5 trillion in spending on infrastructure over the past five years, China still needs more. The nation struggles to provide drinkable tap water, millions of people live in shantytowns and the length of the rail network is yet to match that of the U.S. in 1880. (Source: Bloomberg)

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