I am constantly surprised by how many critics of the China model have never been to China. Most obvious is Jim Chanos but there are many, many others. I won’t highlight them specifically.
The view goes that observation of the data is sufficient for analysts to reach conclusions about what’s happening in China. You don’t need to visit to understand that it is a credit bubble funding over-investment.
Well, I’ve not viewed things that way. Indeed, visiting China has been crucial to my understanding of how its economy works. That’s not to say I’ve always held a similar view. Certainly, my biggest change came between visits in September 2009 and May 2010. I went from a border-line skeptic to a confident bull. The shift is highlighted in the piece I wrote in 2010: China at a tipping point.
One way to highlight the benefit of travel was a segment I wrote on high speed rail where I made the following observations:
… The focus on high-speed inter-city passenger trains will attempt to make rail competitive with air over distances of up to 1,000-1,500km
… because the new network runs side-by-side with the existing network, the legacy network can be, largely, dedicated to freight. The new Wuhan to Guangzhou line demonstrates this with freight capacity increasing to 70% upon opening. The step change created by the line allowed the first movement of coal during the peak travel season around the Chinese New Year in decades
… the train opens new markets by creating better physical connections between people in regional China and the big cities. For instance, it’s likely that there will still be people for whom flying between Beijing and Shanghai is more convenient when the high speed line opens in 2011. But for people in the 20 cities with stations along the line, it enhances their access to China’s political and commercial capitals. By making administration of a business in a regional area easier and increasing freight capacity the train line will bring businesses and jobs to areas with previously limited opportunities. This will also ease pressure on big cities as regional cities can expand faster
… In the case of the Wuhan to Guangzhou route, airlines have already had to aggressively cut routes and fares to maintain profitability while the high speed rail has meant all flights between Zhengzhou and Xi’an have been cancelled.
These comments from 2010 were made solely on observation, listening to people and a little logic. In the intervening period many have argued against the success of the high speed, particularly post the Wenzhou crash (despite this being older technology).
Recently, the New York Times discussed the success of the high speed rail in an article entitled “Speedy trains transform China”. Much of the article highlighted points I’ve made above regarding access to more markets, better urbanisation in non Tier One cities and the impact on airlines.
Nearly every train from Changsha station, leaving minutes apart for cities across China, is sold out, and a big expansion is already planned.
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.
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.
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.
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.
Another impact: air travel. Train ridership has soared partly because China has set fares on high-speed rail lines at a little less than half of comparable airfares and then refrained from raising them. On routes that are four or five years old, prices have stayed the same as blue-collar wages have more than doubled. That has resulted in many workers, as well as business executives, switching to high-speed trains.
Airlines have largely halted service on routes of less than 300 miles when high-speed rail links open. They have reduced service on routes of 300 to 470 miles.
They are also prompting foreign executives to look deeper in China for suppliers as wages surge along the coast.
The only drawback: “The high-speed trains are getting very crowded these days.”
It’s pretty simple. Get to China. Try and understand how all this is going to work.