Chinese Bullet Trains to nowhere

Everybody has heard of Chinese default on their real estate loans of $2 trillion; but there is another story of similar magnitude which is under the covers. They borrowed heavily to finance their expensive High Speed Train (Bullet Train) building, but are unable to meet the interest payments on the monies borrowed, hence another big default is coming. 

Wildly building to showcase their economic prowess, Chinese planners have failed to take into account realistic passenger-kilometer traffic revenue. It turned out to be far below their debt servicing cost. This debacle, including a few others*, has heavily piled up against their total national debt and its servicing costs. Such mindless investments are a major financial headache for China. It is only exports of consumer goods to the United States and Europe that guarantee that any money spent unnecessarily will be repaid, if ever.

*Belt & Road Initiative is another example.

Fifteen years back, concurrently building empty real estate, they began building bullet trains running at a speed of 350km/hour. They were showcasing their progress to the investors in the West on borrowed money and stolen technology. As the money kept coming they kept building. In 15 years, they have built an HST network of 37,000 km until 2021. Only a few have served a useful purpose connecting major industrial and commercial hubs. But in their enthusiasm a lot of this Bullet Train connection were unneeded, but was built.

The flip side of the coin is that it is an outstanding accomplishment. No other country has as much high speed train network laid as China. No one will try to do so because the cost of building these tracks and trains is three times higher than a regular rail network. The main reasons given in 2008 for its construction was to reduce air traffic congestion. It was touted to be easier and simpler. It did not succeed, their air traffic is as congested as ever. The High Speed rail corridors operate at 80-90% of capacity on busy routes. Where as most others operate below 40% of the capacity.

While revenue reached $159 billion in 2019, net profit came to about a paltry 0.2% on margin. With travel restrictions to stop the spread of novel coronavirus, these net profits have dived much deeper, hence a debt default is coming. Today, China is caught up in the high-speed rail debt trap.

Such are the ways of Communist China’s spendthrift habits.

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