Chinese Economics Thread

[Blackstone]

Gordon Chang isn't going to like this story.

Please, Log in or Register to view URLs content!

China reported stronger-than-anticipated exports and imports for May despite falling commodity prices, suggesting the economy is holding up better than expected despite rising lending rates and a cooling property market.

Concerns over China landed squarely back on global investors' radar after Moody's Investors Service downgraded its credit rating last month, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.

Imports have been strong in recent months, driven largely by iron ore and other commodities used to feed a year-long construction boom, while exports have rebounded thanks to stronger global demand after several years of contraction.

Still, analysts had expected trade growth to cool in May, forecasting the economy will gradually lose momentum over the rest of the year as measures to cool heated home prices dampen property investment and a crackdown on riskier types of lending pushes up financing costs.

But growth in both exports and imports defied those expectations and accelerated from April. China's May exports rose 8.7 percent from a year earlier, while imports expanded 14.8 percent, official data showed on Thursday.

That left the country with a trade surplus of $40.81 billion for the month, the General Administration of Customs said.

Analysts polled by Reuters had expected May shipments from the world's largest exporter to have risen 7.0 percent. Exports rose 8.0 percent on-year in April.

Imports were expected to have climbed 8.5 percent, after rising 11.9 percent in April.

Analysts were expecting China's trade surplus to have widened to $46.32 billion in May from April's $38.05 billion.

China's trade surplus with the U.S. was $22.0 billion in May, up from $21.34 billion in April, according to data from China's customs bureau.

The world's two biggest economies have started their 100 days of trade talks, which was agreed by United States President Donald Trump and Chinese President Xi Jinping when they met in Florida in April in an effort to reduce the massive U.S trade deficit with Beijing.

In a sign of progress, the two countries agreed in May to take action by mid-July to increase access for U.S. financial firms and expanding trade in beef and chicken among other steps.

China does not deliberately pursue a trade surplus with the United States, vice commerce minister Yu Jianhua told a news conference on May 12.

China's commerce minister Zhong Shan recently told new United States Trade Representative Robert Lighthizer the two sides should strengthen cooperation and manage disputes in trade, according to a statement on the website of China's Ministry of Commerce.

 

[Blackstone]

I'm surprised Kenya's standard gauge railroad cost four times more than original estimates. Communist Party of China-owned enterprises have lots of experience building RR all over the world, and while some cost overruns aren't unusual, the 4x overrun stands out and beckons closer examination.

Please, Log in or Register to view URLs content!

The first major new railway line in Kenya for more than a century, running between the capital Nairobi and the coastal city of Mombasa, faces an immediate challenge of justifying its relatively high cost.

At $5.6m per kilometre for the track alone, Kenya's line cost close to three times the international standard and four times the original estimate.

So it is perhaps not surprising that Kenyans have been asking why they seem to have paid so much.

Kenya's new 472km (293 mile) railway is the country's biggest infrastructure investment since its independence in 1963. Built to a modern "standard gauge", it runs parallel to the now-dilapidated metre gauge railway line from the colonial era.

While everyone agrees that Kenya desperately needs more infrastructure, not everyone agrees that this was the most economically sensible solution.

Cost comparisons have been made between this line and Ethiopia's 756km Addis Ababa-Djibouti line launched last year.

Both are Standard Gauge Railway (SGR) projects financed by Chinese loans, costing $3.4bn (£2.6bn) for Ethiopia and $3.2bn for Kenya.

Ethiopia's line is more than 250km longer and is electrified, which is typically more expensive; trains running on Kenya's line will be diesel-powered.

The Kenyan government has said the reasons for this high cost include the terrain that required many bridges and tunnels, land compensation and a need for specifications that would handle greater cargo volumes than Ethiopia's line.

Therefore, it says, the two projects are not directly comparable.

About 80% of the money for the new railway came through loans from China.

The loans are the country's biggest yet - amounting to roughly 6% of Kenya's gross domestic product (GDP), which is a measure of a country's economic activity, including all the services and goods produced in a year.

Before Kenya started building the railway, government advisers Canadian Pacific Consulting Services (CPSC) challenged its economic viability in a 2009 study.

It concluded that the benefit of building a new standard gauge railway would be marginal. It was considered "cost prohibitive" using "even the most optimistic" traffic and income projections, it said.

But Transport Minister James Macharia has said the Kenyan government expects the new line to boost GDP by 1.5%, allowing the Chinese loans to be paid back "in about four years".

That projection runs counter to recent fears that Kenya may soon become unable to pay the large amounts owing on existing loans.

Heavy borrowing has seen public debt rise to more than half of GDP in the last four years, yet there has been no corresponding growth in revenue.

Most of the railway's revenue is expected to come from transporting cargo. Only 5% of cargo is currently being transported on the old railway line while 95% goes by road, but Kenya Railways is aiming to push its share to 40% by 2025 with the new track.

It is possible that a law will be passed requiring certain goods to be transported by rail to ensure a massive transfer of freight away from the roads.

Kenya's new railway at a glance:

• Cost $3.2bn (£2.5bn)
• Funding for the 472km (293 mile) project was provided by China
• It took three-and-a-half years to build, using Chinese track-laying technology
• The line is supposed to eventually connect land-locked South Sudan, eastern Democratic Republic of Congo, Rwanda, Burundi and Ethiopia to the Indian Ocean
• It cuts the journey time between Mombasa and Nairobi to four-and-a-half hours, compared with nine hours by bus or 12 hours on the previous railway
• An economy class ticket costs 900 Kenyan shillings ($9; £7), slightly cheaper than a bus ticket. A business class ticket is $30

The new railway also faces a regional contest. Tanzania and Kenya compete to serve the transit trade of landlocked Uganda, Rwanda and Burundi.

Please, Log in or Register to view URLs content!

predicted that freight traffic on the entire East Africa Community rail network would grow to approximately 14.4 million tonnes per year by 2030.

The same study found that investment in a standard gauge railway appeared "only to be justified if the new infrastructure could attract additional rail freight in the order of 20-55 million tonnes per year".

By that measure, the railway would need to win all of the freight currently trucked to and from Mombasa - and more. According to the Kenya Ports Authority, Mombasa port handled a total of just over 26 million tonnes of cargo in 2015.
Despite these challenges, the new railway will undoubtedly bring several long-term economic benefits.

Passengers will enjoy a faster, cheaper journey and the increased freight-carrying capacity reduces wear and tear on the roads.

Freight costs per kilometre in the region are more than 50% higher than in the United States and Europe, so a more affordable rail option is a relief for businesses.

Jobs have been created directly from the construction and maintenance of the SGR, and more opportunities could come as towns and businesses grow along the railway line.

Kenya is the largest exporter and importer in East Africa, and the new railway is a critical part of the plan to connect neighbouring states by rail, making it easier to trade with each other and the rest of the world.

There is no doubt that the project is a gleaming symbol of progress, but now it is up to the volume of business it can attract to prove that it was worth the cost.

 

[Hendrik_2000]

I'm surprised Kenya's standard gauge railroad cost four times more than original estimates. Communist Party of China-owned enterprises have lots of experience building RR all over the world, and while some cost overruns aren't unusual, the 4x overrun stands out and beckons closer examination.

Please, Log in or Register to view URLs content!

The usual western press criticism when it come to Chinese project The article clearly said why it is more expensive than the Ethiopian line
The Kenyan line goes thru the national park so it has to be built over elevated track to allow movement of animal, Land compensation is expensive, higher cargo load need stronger loco and associated signal

The Kenyan government has said the reasons for this high cost include the terrain that required many bridges and tunnels, land compensation and a need for specifications that would handle greater cargo volumes than Ethiopia's line.

Therefore, it says, the two projects are not directly comparable.

 

[delft]

I'm surprised Kenya's standard gauge railroad cost four times more than original estimates. Communist Party of China-owned enterprises have lots of experience building RR all over the world, and while some cost overruns aren't unusual, the 4x overrun stands out and beckons closer examination.

Please, Log in or Register to view URLs content!

The article was written by someone not really knowledgeable about transport technology as proven by { Built to a modern "standard gauge", }. Standard gauge has been chosen in UK a century and a half ago and is 4' 3 1/2" in Roman measurement or 1435 mm. The operating cost per ton transported will be vastly lower than transport by road and will no doubt lead to the near extinction of lorry transport and a large increase in total transport even before the line is lengthened into Uganda and Eastern Congo. The new standard line in Tanzania was originally also proposed by China without any fear it would damage the profitability of the Kenyan line. To the contrary a rail network is more profitable than a single line. The Tanzanian line is now being built by a Turkish consortium and partly financed by Turkey.
It might well be that the costs are four times an initial estimate but they will be near the costs as estimated when the decision to build was taken. They are probably even lower as the build time came out under the estimate.

 

[Blackstone]

It might well be that the costs are four times an initial estimate but they will be near the costs as estimated when the decision to build was taken. They are probably even lower as the build time came out under the estimate].

What makes you say that? I understand it's your opinion, so I'm asking for your reasoning and not evidence specific to the Kenya SGR case.

 

[Blackstone]

The Kenyan government has said the reasons for this high cost include the terrain that required many bridges and tunnels, land compensation and a need for specifications that would handle greater cargo volumes than Ethiopia's line.

To believe what you said, one also has to believe the Chinese survey team somehow failed to notice the difficult terrain, and the financial team didn't take into account Kenya wanted greater rail carrying capacity before issuing the bid.

 

[delft]

What makes you say that? I understand it's your opinion, so I'm asking for your reasoning and not evidence specific to the Kenya SGR case.

If there was vast increase in costs that would have been bound to be associated with a considerable delay in completing the work. As the work was completed even before the promised time the costs cannot have exceeded the expected costs significantly if at all. I already noticed that the writer was ignorant of railway technology so a misapprehension of the costs on his side shouldn't surprise us.

 

[Blackstone]

If there was vast increase in costs that would have been bound to be associated with a considerable delay in completing the work. As the work was completed even before the promised time the costs cannot have exceeded the expected costs significantly if at all. I already noticed that the writer was ignorant of railway technology so a misapprehension of the costs on his side shouldn't surprise us.

Problem is, even if you don't believe the BBC author, other news agencies have reported about 4x higher cost vs. original estimates. Here's an article from African Business:

Please, Log in or Register to view URLs content!

The journey by road from Nairobi to Mombasa is a long, 283km drive. In a normal car, it can take approximately 12 hours, averaging around 20km per hour. The route is hot and dusty, following hundreds of cargo trucks along a single carriageway for the most part, with the odd tyre in the middle of the road or zebra crossing to keep drivers entertained.

The train journey isn’t much better, with regular delays on the antiquated line meaning passengers can sometimes arrive at the train station in Nairobi on Friday for a 5pm departure, and not make it to the coast until Sunday lunchtime.

Aware of the impact this out-dated system was having on GDP, the government decided to build a brand new standard gauge railway (SGR) line. Its vision was of a line that would simultaneously transport greater volumes of cargo more quickly, take the pressure off the roads and improve transport for tourists. Building of the new line began in October 2013 and it is scheduled to be complete in December 2017.

“This project is transformative,” says Kenya’s cabinet secretary for transport and infrastructure, James Macharia. “[It will] reduce the number of hours for cargo and passengers from Mombasa to Nairobi. We anticipate that upon completion it will … improve GDP by at least 1.5%.”

Benefits also include job opportunities – approximately 30,000 jobs have been created in building the new line – and upping the amount of cargo that can be transported. As Irungu Nyakera, principal secretary of the Ministry for Transport, says: “[With the new line] we’ll be able to move up to about 22m tonnes of freight on an annual basis. That in itself is removing a significant number of trucks from the road, but at the same time also lowering the costs of transportation by 60%.”

Yet the new railway line has been met with a mixture of criticism, particularly in respect to the huge cost of the build. The SGR is on track to cost approximately $14bn according to latest reports, which is nearly four times the original estimate. It is being funded 90% by the Exim Bank of China, with the Kenyan government covering the remaining 10%.

Many are concerned that this new line does not represent good value for money. Development economist Anzetse Were notes that Kenya is being charged $1.7m more per km than Ethiopia is for its new railway. “As early as 2013, experts raised questions about the costing of Kenya’s SGR … This is particularly a concern because, as experts have pointed out, there are no major rivers or lakes or big hills to justify the high cost of the SGR,” she says (see p. 52 for more on Ethiopia’s railway).

Questions are also being asked about how big an improvement the new line will actually represent. “The SGR freight will have an average speed of 80kph while [Ethiopia’s railway] will go up to 120kph; experts state that it is doubtful those speeds will be reached by the SGR because it is a single track and stoppages will be needed to allow other trains to pass,” says Were.

Cost to wildlife

Beyond the large economic cost of the new line, there are mounting costs to wildlife. According to Paula Kahumbu, chief executive of Kenyan conservation organisation Wildlife Direct, “[The new line] is up on an embankment. It’s completely altered the accessibility from Tsavo East National Park to Tsavo West National Park. Elephants are confused and disorientated … finding themselves on farms, destructing crops and angering farmers.”

Kahumbu says that there is no doubt human-wildlife conflict has risen as a result of the new line. “Elephants are being killed, and that’s a ‘cost’ that is not being talked about very much at all.” The future, she says, looks bleak for these creatures in a country hell-bent on development.

New plans are now in place to drive the SGR through the middle of Nairobi National Park, which has conservationists and locals up in arms. Kenyan Oscar-winning actress Lupita Nyong’o most recently waded into the debate: “We as Kenyans are so fortunate to be the custodians of a large biodiversity that exists in our national parks … Urge [the government] to construct around the park, not through it!”

Yet despite their best efforts, concrete pillars are already being constructed in the park for the SGR, which can be seen from miles around. Kenya Wildlife Service Director General Kitili Mbathi said of the move, “We were between a rock and a hard place – either give up 50 hectares and increase the cost by 50%, or have the least obtrusive bridge across the park.”

Also under fire is the cost to individuals, whose homes have been bulldozed for the new line, sometimes without adequate compensation, and whose livelihoods have been disrupted. In Mombasa, for example, the dredging and building for the new station has cost fishermen their jobs.

Mohammed Said, a fisherman at the Kenyan coast says that the new line has “covered the portion of the ocean that we were using. Previously, we used to do our fishing very well but since the project started it has affected us. We have not been compensated, but they keep on encouraging us that they will.”

And there’s the cost to the environment. Ruth Birgen, Legal Researcher at Natural Justice, a legal firm focusing on environmental law and human rights, talked of the impact the sand harvesting for the line has had on the country and the locals living in the affected areas. “There are massive challenges at the moment. The new line requires a huge amount of sand for the build. This has to be taken from rivers or the sea. Across the country, rivers have been devastated, farms have been affected by the lack of water, livelihoods at the coast are being lost and communities are being pitted against one another.”

With all these mounting costs, some have quipped that the SGR is just as much a “lunatic line” as the old one. The current railway was nicknamed the Lunatic Express due to the gigantic cost of the build, and because man-eating lions killed a number of the construction workers along the way.

Yet the government and Kenya Railways Association (KRA) are certain the line will have a positive impact on the country, despite all the challenges and criticism faced. One KRA representative said, “We are serving the people of Kenya and East Africa. This is not the lunatic express; this is the sanity express.”

 

[delft]

Problem is, even if you don't believe the BBC author, other news agencies have reported about 4x higher cost vs. original estimates. Here's an article from African Business:

Please, Log in or Register to view URLs content!

This article contains a lot of points I'm ignorant about. As for the project cost of the line I read nothing problematic about it in the news review of Railway Gazette which did note that the line was completed about half a year early. And an increase of a factor four would certainly have been noted.

 

[Hendrik_2000]

To believe what you said, one also has to believe the Chinese survey team somehow failed to notice the difficult terrain, and the financial team didn't take into account Kenya wanted greater rail carrying capacity before issuing the bid.

This spec is probably change to accommodate the environment protest concerning the railway was passing thru the national park So the initial estimate doesn't take that into account.

I guess you never work on engineering project there is always surprise when it come to engineering project.
So many thing can go wrong specially working in under developed country. to begin with most of the material need to be imported and it is long line of supply. Delay and snafu is common
Then there might be problem with local content requirement and no Kenyan company ever built railway before and skill labor available. They need to be trained

Geo study can only do sample analysis when you actually do the foundation footing that is when you found out something wrong with your analysis

I know from video they have trouble sourcing fly ash for concrete mixture as none was available in Kenya
So they do substitute of volcanic ash needing new formula for concrete.

So over budget in massive engineering project is common
see the new San Francisco bridge

From $250 Million to $6.5 Billion: The Bay Bridge Cost Overrun
A new book offers insights on how yet another huge mega-project soared way over budget.

Please, Log in or Register to view URLs content!

You cannot trust BBC because they are so anti China and do everything to criticize or put China in bad light
They should criticize their own new nuclear power plant at Hinkley point

Please, Log in or Register to view URLs content!

Mar 9, 2016 - Meltdown at EDF over €23bn UK nuclear power plant ... the first new nuclear plant to be constructed in Britain in a generation. ... two years behind schedule and £2 billion over budget, would be hugely embarrassing politically.

That is only 1 bridge 1 power plant.On Kenyan project there are numerous bridges and tunnels. What China did is amazing actually they built it ahead of schedule and only 4X overbudget considering how difficult it is to accommodate all the conflicting environment requirement and land settlement