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China’s high-speed rail gets back on track

By Simon Rabinovitch | Financial Times,

BAZHOU, China — What a difference a year makes for China’s high-speed rail ambitions, and for the Chinese economy.

After being abandoned and left to lie dormant, the scrubby farm fields around Bazhou, in northern China, have sprouted rail bridges, elevated track beds and neat rows of workers’ dormitories. The fields are well on their way to becoming a link in the country’s rapidly expanding high-speed rail network.

It is a sharp turnaround from late 2011, when China slammed the brakes on its rail program, suspending virtually all new investment after a bullet-train crash killed 40 people and raised questions about the quality of the track that had already been laid.

The revival of rail investment and infrastructure spending, which started around the middle of last year, was a crucial factor in China’s economic recovery. When Beijing reports its latest growth figures Friday, the numbers are widely expected to show that the economy accelerated in the fourth quarter, breaking a run of nearly two consecutive years of slower growth.

Full-year growth in 2012 probably fell short of 8 percent, the lowest in more than a decade, but the momentum in the final quarter has fueled investor optimism that China will again be the world’s strongest-performing big economy this year, helping to make up for the struggles in the United States and Europe.

“The end of 2011 was probably the worst in terms of the amount of money spent on infrastructure. It nearly came to a halt,” said Ken Peng, an economist with BNP Paribas in Beijing. “The bounce back in infrastructure investment was clearly the main driver of the rebound.”

Investment accounts for nearly half of China’s gross domestic product, making it as big an engine of growth as consumption and exports combined. Railway construction is only about 2 percent of that, but its importance is far greater, stoking demand for steel and helping shape business sentiment.

A small city a little more than an hour’s drive from Beijing, Bazhou was at the sharp end of the cancellation of rail projects in 2011. It was meant to serve as a station on a line connecting the cities of Tianjin and Baoding, but the workforce laying the track shrank overnight from 600 to 20.

“When they stopped building rail, it led to thousands of companies, including state-run steelmakers, cutting production,” said Wang Mengshu, deputy chief engineer at the China Railway Tunnel Group. “These companies appealed to the central authorities and said, ‘If we don’t get back to building rail, we’ll be finished and workers won’t get paid.’ ”

The government was initially in no rush to restart construction. In December 2011, it published a report that blamed dozens of officials and businesses by name for causing the deadly bullet-train crash through lax application of safety standards. Railway plans also suffered aftershocks from the corruption investigation that led to Liu Zhijun’s removal from office as railway minister two years ago.

But in early 2012, as the depth of the economic slowdown became clearer, Wen Jiabao, China’s premier, signaled that it was time for rail investment to resume. He visited train manufacturers and railway construction sites, giving the industry a vote of confidence.

That was quickly translated into a series of budget increases for the Railway Ministry, from $64.3 billion at the start of the year to more than $96.5 billion by the end of the year. Investment shot up in the second half, rising 80 percent from a year earlier in September and October.

With high-speed trains now running a little more slowly than before, with few apparent glitches, Wang says China’s railway boom is set to run for years to come. “Our rail system is still far from sufficient, and building more high-speed lines is a necessity,” he said.

He noted that China has 58,000 miles of track for a population of 1.3 billion, whereas the United States has nearly three times that amount of track — 143,000 miles — for a population of 300 million.

Construction has fallen quiet again recently in Bazhou, but that is because of the deep winter freeze in the country’s north. A security guard at the base of a 98-foot-high rail bridge that had been built just before the cold weather arrived said workers were expected to return in full force after the Chinese lunar new year festival in February.

The railway boom has also started to change the daily commutes of urban residents throughout China, with central planners approving more than 60 subway and light-rail lines last year. Beijing this month opened four new or extended subway lines, which were brimming with passengers within hours.

Looked at from the perspective of Chinese growth, though, there is one big downside. As the size of the country’s rail network expands, the rate of increase in new investment will inevitably decline because so much has already been built. According to Peng, 2013 could mark the peak for rail construction.

“Right now, this is the strongest moment for investment,” he said. “But later on this year, we will start to see some constraints. Growth will slow.”

— Financial Times

Emma Dong contributed to this report.

© The Washington Post Company