The Washington Post

China’s train wreck
The Washington Post

For the past eight years, Liu Zhijun was one of the most influential people in China. As minister of railways, Liu ran China’s $300?billion high-speed rail project. U.S., European and Japanese contractors jostled for a piece of the business while foreign journalists gushed over China’s latest high-tech marvel.

Today, Liu Zhijun is ruined, and his high-speed rail project is in trouble. On Feb. 25, he was fired for “severe violations of discipline” — code for embezzling tens of millions of dollars. Seems his ministry has run up $271?billion in debt — roughly five times the level that bankrupted General Motors. But ticket sales can’t cover debt service that will total $27.7?billion in 2011 alone. Safety concerns also are cropping up.

Liu’s legacy, in short, is a system that could drain China’s economic resources for years. So much for the grand project that Thomas Friedman of the New York Times likened to a “moon shot” and that President Obama held up as a model for the United States.

The fact is that China’s train wreck was eminently foreseeable. High-speed rail is a capital-intensive undertaking that requires huge borrowing upfront to finance tracks, locomotives and cars, followed by years in which ticket revenue covers debt service — if all goes well. “Any .?.?. shortfall in ridership or yield, can quickly create financial stress,” warns a 2010 World Bank staff report. Such “shortfalls” are all too common. Japan’s bullet trains needed a bailout in 1987. Taiwan’s line opened in 2007 and needed a government rescue in 2009. In France, only the Paris-Lyon high-speed line is in the black.