China's huge spending on railroad construction - more than 3.7 trillion yuan (HK$4.2 trillion) over the next six years by some estimates - has stirred heated controversy. Supporters say the massive expenditure is an important stimulus to China's economy and provides much-needed infrastructure for future growth. Critics complain about the high costs of the railway projects, especially the high-speed rail system, which they claim are wasteful monuments to national vanity. Even China Central Television admits that questions have been raised over the 116.6 billion yuan price tag of the recently launched Wuhan-Guangzhou high-speed rail. And the Hong Kong-Guangzhou high-speed rail, the Express Rail Link, expected to start service in 2016 will be the world's most expensive high-speed rail per kilometre at a total cost of more than HK$60 billion. China's rail budget is enormous. A report by Nomura analysts Jiong Shao and Stephen Chow estimates the nation's railway infrastructure investments at 550 billion yuan last year, 700 billion yuan this year and three trillion yuan from next year to 2015. These include the government's plan for 18,000 kilometres of high-speed rail by 2020, which will account for most of the world's high-speed rail network. To some experts, China's railway expansion bears similarities to Britain's during its industrial revolution in the 18th and 19th centuries. Eric Hobsbawm, a British Marxist historian, describes in his 1968 book, Industry and Empire, how the world's first industrial revolution started in Britain in the 18th century and fuelled the rise of the British Empire. Hobsbawm says the first phase of the industrial revolution, from 1780 to 1840, was driven by cotton manufacturing and exports, which made Britain the world's factory. This is similar to China, which has become the world's factory since the 1990s on the back of its manufacturing and exports of light industrial goods such as textiles and toys. Its light industries now face a challenge amid the financial crisis, as developed economies are expected to reduce consumption of such goods. Like China's today, Britain's textile industry neared its growth limits around 1840, but its aggressive railway construction launched the second phase of its industrial revolution from 1840 to 1895, writes Hobsbawm. Between 1830 and 1850, Britain spent GBP240 million (HK$3 billion by today's exchange rate) - an enormous sum of money in those days - laying 6,000 miles of railway. The capital cost per mile of rail in Britain was the world's most expensive at that time, five times higher than in the United States and seven times as high as in Sweden. This mirrors the complaints against the huge costs of high-speed rail in Hong Kong and on the mainland. 'Their sheer size dwarfed the most gigantic public works of the past,' writes Hobsbawm. 'Many of the railways were quite irrational by any transport criterion. Only a small fraction of the ?40 million invested in railways by 1850 had any rational justification. Much of it was rashly, stupidly, some of it insanely invested. Much of it was sunk without trace.' A speculative bubble, the Railway Mania, arose in Britain in the 1840s, when railway shares rose to dizzying heights and then crashed, causing many families to lose their savings. Yet Britain's titanic railway construction was the key to taking the country's industrialisation to a more mature phase, argues Hobsbawm. 'From the point of view of the entire British economy, they were, by accident rather than design, an admirable solution to the crisis of the first phase of British capitalism. Such a vast economic stimulus, coming at the very moment when the British economy was passing through its most catastrophic slump of the century [1841-42], could hardly have been better timed.' This is similar to China's four trillion yuan stimulus package, much of it spent on railways, which drove its gross domestic product growth above 8 per cent last year and could spur it as high as 10 per cent next year. Britain's railway building had several consequences, writes Hobsbawm. One was the rise of its heavy industries such as coal and steel. Although China has long had the world's biggest coal and steel industries, its railway sector is likely to accelerate production of sophisticated heavy capital goods, such as trains, which could eventually surpass its light industries in importance. Another consequence was a rail construction boom in Europe, the US and other parts of the world in the latter half of the 19th century, much of it by British financing, equipment and contractors. Today, China South Locomotive & Rolling Stock Corp is in negotiations to supply the first US high-speed trains and sell trains to Britain. Nomura expects Chinese firms to capture at least 10 per cent of the world's train market outside China in the future. China Railway Group and China Railway Construction Corp have become the world's biggest rail construction firms, laying thousands of kilometres of railway in Africa, the Middle East and Latin America. A third result of Britain's rail boom was the export of British capital. By 1870, GBP700 million of British capital was invested in other countries. China is providing billions of dollars of debt financing to African nations in infrastructure-for-resources deals, building railroads in return for oil and metals and driving the economic growth of that continent. Britain's 1840s Railway Mania produced the stock exchanges of Manchester, Liverpool and Glasgow. The trillions of yuan of capital devoted to railways could create more sophisticated financial markets in China. Although complex financial instruments such as collateralised debt obligations were a key cause of the global financial crisis, they could also be used to better channel Chinese capital and avoid bubbles in the property and stock markets. Much of China's railway spending is likely to be wasteful or inefficient. Its high-speed rail will connect remote provinces such as Xinjiang and Yunnan, potentially making for under-utilised lines. However, history also suggests China's rail expansion could have the unintended effect of taking its economy to a more advanced level and expanding its economic clout around the world. On the fast track Analysts expect China to spend 600 billion yuan on railway infrastructure, 250 billion yuan on subway infrastructure and 165 billion yuan on rolling stock each year from 2011 to 2015 Key railway and metro numbers Railway in operation (km) 2007: 78,000 2008: 80,000 2010: 90,000 2012: 110,000 2020: 120,000 Locomotives in operation 2007: 18,306 2008: 18,437 2010: 19,000 2012: - 2020: - Metro in operation (km) 2007: - 2008: 813 2010: 1,500 2012: 2,000 2020: 4,500 Metro trains in operation 2007: 3,854 2008: 4,300 2010: 7,000 2012: 9,400 2020: 32,400 Key investment figures (b yuan) Railway infrastructure 2009: 550 2010: 700 2011-15 average: 600 Railway rolling stock 2009: 78 2010: 100 2011-15 average: 150 Metro infrastructure 2009: 190 2010: 220 2011-15 average: 250 Metro rolling stock 2009: 7.2 2010: 9 2011-15 average: 15 SOURCES: MINISTRY OF RAILWAYS, NOMURA
