新手第一文:Best time in history to construct railroads
Best time in history to construct railroads
Introduction
As I discovered recently, China is now entering the best time in history to construct railroads. Let me break down this topic into different aspects and exam them one by one. By saying massive railroad construction, I mean that at least 10,000 km of track has to be laid down annually. This amount is about half of what the American did annually in late 19th century.
Labour and engineers
China is famous for it’s massive engineering project. Historically speaking, our ancestors built many magnificent projects such as the Great Wall and the Great Canal. In modern times, we are building the world largest hydroelectric dam, the Three Gorges Dam. Among the world’s ten tallest buildings, China has six.
When referring to railroad construction, the Chinese has a great reputation. We took the most difficult and dangerous tasks in constructing the transcontinental railroads in North America. From the Central Pacific to the Northern Pacific to the Canadian Pacific, Chinese workers earned a worldwide recognition of hard working by breaking through the Rocky Mountains. In terms of domestic construction, we were able to finish the Nanjing Yangtze River Bridge without the help from the USSR. We were able to build the world highest railroad, the QingZang Railroad through the world highest plateau within 5 years.
As farmers leaving their land and moving to work in the cities, China now facing a labour surplus. We will not have a labour shortage as the Americans did during the late 19th century if we start massive construction.
So my conclusion is that China has a world class engineer groups and a massive labour force most suitable for railroad construction.
Raw material
China is considered to be the world’s factory. It produced about 489.0 million tons of steel in 2007, that’s about 36.4% of the world’s total production. We have factories (Pangang) which are able to produce 100 m long high quality steel rails. As China’s steel production rises so quickly those years, it’s is not hard to see a surplus in steel production in the future. If massive construction started, it is able to consume this surplus and keep the steel industry in good condition. China also produced about 1450 million tons of cement in 2007. This is over 44% of the world production. We have steel and cement, railroad construction is ready to go.
Demand
As China developing fast, the demand of transportation is increasing and will keep increasing at a rate relevant to the economic development.
Farmers in China leave their unproductive land in the west mountains and go east to seek jobs in the coastal cities, where they believe the wages are much higher and they can get much higher income than farming their lands. This creates a huge flow of people between west and east. Every Chinese New Year, the demand on railroad is apparent when you look at the long lines of people waiting to get a ticket. It is estimated that over 180 million people will use the railroad as their primary source of transportation during the Chinese New Year in 2008. I believe that as the economy developing in both east and west of China, the demand of rail transportation will keep increasing and at a rate relevant to the development of economy. That is about over 10% every year. As people getting wealthier, they have more money, and are more educated, so they want to travel more. As more business happening from east to west, business man have to travel. As people migrate to the east coast and settle down, they and their relatives eager to travel to resolve homesickness. As more and more Chinese student enjoy high education, more student need to travel to their universities, which are probably not located in their hometown. Thus economic development will increase the need of transportation.
China’s mineral reserves are not evenly dispersed though out the world’s fourth largest country. Most of China’s electric power comes from coal and most of the coal is located in interior or Northern China. However, the biggest load centers are located along the coast and especially in South China. As the demand of electricity increases, the demand for coal increases, too. Like what happened in early 2008, power plants had to shut down their boiler because they could not get enough coal from the railroad. Electricity demand increases about 15% every year, so does the demand for power coal. Hence, the demand for railroad transportation increases significantly.
Lot’s of China’s bulk mineral reserves such as iron ore or copper ore located far away from the coastal area. Railroads are curial to bring them out. Once upon a time, the Japanese were reluctant to transfer technology to Chinese railroad locomotive factory saying that if the Chinese was able to bring the raw material out of interior China through the bulk lines and powerful locomotives, China would grow much faster and become a threat to the Japanese.
China, unlike the US and Canada, has a huge population located far from the coastal area. They need railroads to transport the produce from the east factories as well as the import to the local market. They also have massive projects such as hydroelectricity power plants going on. They need railroad to transport the heavy machinery to the construction site. This also increases the demand for railroad.
If Chinese railroad cannot meet those demand, people either have to refer to other ways of transportation, like using trucks to transport coals, which is obviously more expensive than railroad, or they have to suppress their demand thus slow down the development and creating social problems.
Right now, Chinese railroad can only meet 30% of freight request and getting a railroad ticket is always a nightmare. So if we don’t start to expand the system right now, railroad shortage will get even worse.
Railroad financing
Railroad construction is a capital intense project. It requires huge investment. Normally it cost about 60 million RMB per kilometer on level and about 100 million per kilometer in the mountains. However, as the Chinese are becoming wealthier day and night. By the end of 2007, there is about 17.25 trillion RMB of savings in Chinese banks. This is enough to build 172,500 km of tracks in the mountains right now. They have huge amount of money sitting in the bank and waiting to invest into the industry. Rather than invest into the real estate and the gambling stock market, steady return is all they need. In 2007, the total amount of the stock exchange is 46 trillion RMB, which is 5 times that of 2006. The extra money also pushed the price of housing to a record high all over the country. There is plenty of money sitting in the back and worrying about inflation. They need to find a way to get out of banks. Foreign investment cannot be neglected. It also can be a big contributor to the Chinese railroad construction.
In China, highway construction is even more costly than railroads, because highways are much wider than railroads. China never had a problem with highway financing and was able to finish a network second largest in the world only to the US in less than 15 years. With proper government aids and regulation, I don’t think railroad financing will be a hinder to railroad development.
The more time we wait, more money we pay. Labour cost in China is raising about 15 to 20% every year. The cost of iron ore more than tripled in less than 4 years. After a declaration of 65% raise in iron ore price by VALE, the huge iron ore company, the steel companies raised the price of steel immediately. Last but not the least, the price of coal is rising (more than 10% every year), too, which will also make cement more expensive.
National Security
People in favour of keeping railroad a nation owned entity will argue about the national security issue against privatizing. They say that in case war happens, all railroads will stop functioning and the foreign investment will be pulled out so the company will bankrupt.
I don’t see there is a direct connection between warfare and the cease of the railroad’s business. As long as the railroad can have a reasonable income during the war time, there is no excuse for them to stop their operation. In contrast, due to much more demand in war time, railroad companies normally generate more profits.
The government can always take over the railroad if necessary by announcing a state of emergency. In the US, “the Appropriation Act permitted the president to take over all transportation should it be deemed necessary.” They did so during the high demand period in the First World War, which turned out to be a disaster to the railroad industry afterwards. The same thing could happen in China during war time, too. But remain competition between railroad in peace days is crucial to lower down the price and improve the service.
However, a vulnerable railroad system will not be able to meet the sky rising demand during warfare. The Railroad system in China is not even able to meet the demand during normal peak periods. How can it be able to handle huge transportation demand during the war time? For example, the Daqing Railroad transports about 300 million tons of coal to the coast during 2007. It contributes to about 1/5 of the countries’ electricity production. And it is the only railroad having that capacity in China. Railroads like that will be the most important target to enemies. Imaging once it is destroyed, steel mills and power plants in east coast have to be shut down. Then China will not able to continue the war simply because they cannot manufacture enough weapons, even keeping tens of millions of people lighted at night will be difficult. So our conclusion is privatization railroad will not have bad effect to the national security.
Conclusion
Our conclusion is obvious: this is the best time to start massive railroad construction. Let railroads power the economy of China as they did for the US in the beginning of the 20th century and for Japan after the Second World War. We already fall behind; there is not much time to hesitate on this issue.
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