State officials taking someone for costly and high-speed ride

PUBLISHED : Tuesday, 10 August, 2010, 12:00am
UPDATED : Tuesday, 10 August, 2010, 12:00am

When questioned about the commercial viability of high-speed railways to less developed and populated regions ... a senior railway official replied that it would generate economic and social benefits beyond returns to shareholders.

Such indirect gains should be included in the list of benefits to entice private and foreign investors.

SCMP, August 9

When governments get involved in economic initiatives, you very quickly hear what I call shudder words - terms and phrases that guarantee you that good money is about to be thrown away.

A good example is 'seed money' - translation: 'We haven't a cent ourselves and we can't find any investor to support us, but we believe, because the great Tom-Tom in the sky has told us, that we have a winner. Therefore, you, Mr Bureaucrat, must fund us. It's your duty to the country. Get with it.'

Another one is 'critical mass' - translation: 'The project for which you gave us seed money turned out, we can't fathom why, to be a loser but it's your fault, Mr Bureaucrat, because you didn't give us enough money. Fork out some more and be quick.'

The most common shudder words of all, however, are 'economic and social benefits beyond returns to shareholders'.

Mind you, some of these words have definite meaning. Economic benefit means the spillover effect of spending money. Your boss pays you a dollar, which you then pay the grocer, which he then uses for the plumbing repair bill, which the plumber then pays for school fees and so on.

By keeping these 'so-on's' going, you can easily turn one dollar into 10 dollars of benefit this way. Our government does it all the time to justify wastrel concrete pouring projects, conveniently forgetting that it is true any time that anyone spends any money for any reason. It doesn't really mean much.

Social benefit is also undeniable. I, too, find benefit in rail journeys that whisk me quickly to my destination in comfort. That's a personal benefit. It becomes a social benefit when many people enjoy it.

But what I would like right now is to see some friends in San Francisco and be back for dinner. For this, I shall need a hypersonic low-earth-orbit rocket ship. It would be very hi-tech, building it would bring lots of that spillover economic benefits and there would be social benefits to the users. If we are beyond returns to shareholders anyway, why not?

Well, you say, because it would cost way too much money, that's why not.

I agree. It would. But if we want to introduce this yardstick of value for money when we talk of rocket ships, why do we never pick it up when we speak of high-speed railway systems?

It is not too difficult to determine whether there is value for money in high-speed rail. Just calculate the full cost - capital, operating and reasonable return - of any given rail journey and then ask the passenger if he would be willing to pay that much.

It would probably be something like four times what he does pay, and he would almost certainly say no. But he will pay it anyway, either through fares or in taxes, and there is your test. If the intended beneficiary of the service does not think it offers real value for money, why offer it?

It seems the authorities in Beijing actually thought that the private sector would come up with 40 per cent of the financing for the high-speed rail initiative. The actual figure so far is about 5 per cent.

This surprises me indeed. What charity contributed 5 per cent? People in business would never do so. They would soon be out of business if they put money into schemes that are defined as beyond returns to shareholders.

I am truly mystified by this. Just how does the senior railway official we quoted believe that he can entice private and foreign investors if what he offers them in return is social benefit?

I accept that people who have known only state planning throughout their careers have difficulty understanding how a real economy works, but what I cannot understand is how people like that can then be put in charge of a multitrillion-yuan investment programme.

And I shudder to think what it means for the security of a banking system that has seen deposits rise almost sevenfold over the past 10 years. It is the mainland's much-raided banks that carry the load of what private investors will not fund.

If things have gone beyond shareholder returns, then they have gone beyond return to depositors, too, and the whole banking system is then undermined.

Yes, the picture is becoming clearer. Someone is being taken for a ride here and a high-speed one, too, but it's a journey that's likely to end in a crash unless the brakes are applied soon.