"There is danger from all men. The only maxim of a free government ought to be to trust no man living with
power to endanger the public liberty." - - - - John Adams

Thursday, February 23, 2012

Is China going broke?

The Chinese economic bubble may be bursting.

China's high-speed rail project has run out of money
  • The Communist Party has suspended 70% of the rail projects.
  • Massive debt and rail travel makes no money
  • Corruption - toilets installed at a cost of 1.2 million yuan (£120,000) a piece.
  • Local governments are over $2 Trillion in debt.

Is the Chinese economic bubble getting ready to burst?  China is experiencing labor unrest, massive local and national debt and a massive overbuild in the real estate sector.  As the economy slows will it spark internal unrest?  or drag down the other economies in the world?

Out of 23 current railway projects, some 70 per cent have been suspended, partly suspended, or delayed, according to the Chinese state media.

Meanwhile, an unnamed source told Dow Jones, the news agency, that only nine new railways would be commissioned this year, compared to 70 last year.

Having run up enormous debts, the Chinese Railways ministry is struggling to persuade banks to continue to finance its ambitions reports the UK Telegraph.

Ticket sales, meanwhile, have been slow on some lines as travelers baulk at the price.

Chinese Ghost Cities . . . .

"The ministry cannot bear so much debt. It has already taken 240 billion yuan (£24 billion) of loans and if it takes much more how can it pay the interest?" said Wang Mengshu, a member of the Chinese Academy of Engineering and senior consultant on the high-speed rail project.

"It can make profits of about 70 billion yuan on freight, but it is making no money on passenger travel. The government should cancel some of the debt, or invest some money itself rather than asking the banks to finance it," he added.

"A lot of projects are half-finished and while nine new lines have been approved this year, no one has started building them."

At the height of the high-speed boom, trains were being fitted with toilets that cost 1.2 million yuan (£120,000) a piece, and taps imported from Japan that cost 7,000 yuan, according to an investigation by Century Weekly magazine.

Questions were raised about how much of the £190 billion high-speed rail budget had been siphoned off, and whether it would have an impact on the safety of the network.
(UK Telegraph)

Also see our article:

THE FEDERALIST - "Chinese local government debt at $2.04 trillion."

Running out of money.
The Chinese are shutting down construction of their train system.  They are massively in debt
and they cannot charge enough for riders of the system to make a profit.


JD Storm said...

If China's bubble does burst, this leaves me with a big question. Won't this force them to panic, regarding the money America owes them?

Last I checked, America stilled owed them quite a bit of money. If they're about to have problems, they'll want to collect whatever is owed them as quickly as possible. Generally speaking, that seems to be pretty common place whenever someone is in desperate need of cash.

Gary said...

From what I have read China is already selling off some of our debt.

At this stage we are basically printing, not borrowing, money.