China’s state-owned railways are going to raise ticket prices. Well, railway operations do that, but a few other details set out in this story from Nikkei Asia were a little more unusual. The first was that, according to China’s always reliable Xinhua News Agency, this was the first time prices had gone up in ten years. There hasn’t been much inflation in China over the past ten years, but even so. . . . But then there was this:
China Railway’s move to effectively raise fares despite the downturn owes to the company’s massive debt, which totaled 6.13 trillion yuan ($859 billion) as of the end of 2023, well over double that of embattled property developer China Evergrande Group.
$859 billion!
A good part of the explanation for that lies in the expansion of the railway system:
Building out its route network has weighed heavily on its finances. China’s rail network spanned 159,000 kilometers in 2023, a 20% jump over the past five years, according to the National Railway Administration.
More than 25 percent of the network is high-speed, which is impressive, as, in its own way, is $859 billion in debt. Nikkei Asia’s reporter (Kohei Fujimara) notes that the expansion of the network has not increased profitability. That’s not particularly surprising; expanding the railway network is presumably all part of Beijing’s plan to modernize the country. Whether the pace of that spending was wise is a different matter and, as usual, central planners have left a few hallmark signatures:
A high-speed railway station in the city of Dandong in northeastern China’s Liaoning province was quiet on a recent day. The tiled floors were dirty, and the asphalt of the car pickup area outside was cracked.
“There were passengers when the station first opened, but gradually we stopped seeing them,” said a man who runs a shop nearby.
The station opened in 2015, according to Chinese media, but stopped operating just three years later. There are at least 26 high-speed railway stations in China that are not in operation, and eight of them have never been used.
(Meanwhile, $11 billion or so has already been spent on California’s high-speed rail line with very little to show for it, but that’s both the same story and a far stupider one.)
The reference to Evergrande (which I wrote about here) in the Nikkei story is a reminder, not that one ought to be needed, that China’s debt problems do not stop at the railways.
China’s economy is buried under a great wall of debt and Xi Jinping’s answer is to add more bricks. The president has sanctioned an extraordinary programme of borrowing by the central government to steer the $18 trillion behemoth to “high quality development”. In doing so, he is piling risk onto the country’s last decent balance sheet.
There is nothing new in the Chinese central government taking on more debt in a time of crisis. But the latest plan, outlined in March by the State Council, to sell special sovereign bonds with maturities of up to 50 years is a departure from a tested formula.
I wonder who will be buying those. Step forward, banks!
Superficially, China’s central-government debt load is nothing to worry about (at 24 percent of GDP). The problem comes when local-government debt, the debt accumulated by local government “lending vehicles,” and the debt of other government funds are added to the pile. That takes the total to 116 percent of GDP. But then, adds Reuters, throw in corporate debt. That adds another 123 percent of GDP, much of it issued by state banks and owed by state-owned enterprises. Household debt adds another 61 percent, taking the grand total to over 300 percent. How precise are these estimates? Who knows?
I’m sure this will all end splendidly, and that there will not be knock-on effects elsewhere.
Not really.