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2 California poses rail risk for
China By Peter Lee
The
California High Speed Rail Authority (CHRSA) would
be happy to consider investment by the People's
Republic of China's sovereign wealth fund, China
Investment Corporation (CIC), in the state's
proposed high-speed rail link between Los Angeles
and San Francisco, China Daily reported last
month. [1]
The authority's chief
executive, Roelof van Ark, also indicated a
willingness to consider procurement of Chinese
high-speed rail equipment for the project.
The CHRSA is facing gigantic funding
problems and its interest in Chinese involvement
is apparently more than idle chatter. The
Christian Science Monitor reported that California
high-speed rail, along with Hollywood cinema and
NBA basketball, was on the
menu when Xi Jinping,
much touted as the next PRC president, visited Los
Angeles in early February:
Los Angeles Mayor Antonio
Villaraigosa and California Governor Jerry Brown
want to talk to Xi about Chinese investment in
high-speed rail, which has come under scrutiny
and has lost some public support here in recent
weeks with the release of several studies
suggesting major cost overruns.
[2]
Chinese corporations would love to
get into the US infrastructure business. China's
State Construction Engineering Corporation has a
subsidiary, China Construction America, in New
York City. It has US$2 billion to invest and
apparently sees US stinginess in the matter of
infrastructure investment as a business
opportunity:
Joe Catapano, a project manager with
China Construction America, said the expertise
and capital Chinese companies can provide are
important.
"The key issue is money. It
doesn't seem the United States government is
willing to spend money (on building
infrastructure)," said Catapano, who has 12
years of engineering experience in New York and
California.
"High-speed rail is
definitely something we can learn from China. We
don't have any of that in the US, anywhere," he
added. [3]
In 2010, China seemed
ready to make a high profile play in Californian
high-speed rail.
The PRC was basking in
largely favorable coverage of its work fabricating
enormous steel modules for the new Bay Bridge
connecting San Francisco and Oakland. Only China,
it seemed, had the capability to undertake the
massive project. Caltrans, the state road
authority, estimated that outsourcing the modules
to China had saved $400 million on the $7.2
billion bridge, one of the most expensive
structures ever built. [4]
In 2010,
Governor Schwarzenegger visited the bridge
fabrication factory in Zhuhai to express the
state's appreciation, and toured China, Japan, and
South Korea to investigate high-speed rail. The
Chinese told Bloomberg:
China can offer a "complete
package," including financing, as it competes to
build a high-speed railway in California costing
more than $40 billion, according to the nation's
railway ministry.
"What other nations
don't have, we have," He Huawu, the ministry's
chief engineer, said in a Sept. 14 interview in
Beijing. "What they have, we have better." He
declined to elaborate further on how much
financing may be available. ... "The deal
would be of great symbolic significance to China
as it allows the nation to export technological
knowhow to a country as developed as the U.S.,"
said Wang Sheng, an analyst at Shenyin Wanguo
Securities Co. from Shanghai. "China is fully
able to afford the financing." [5]
In
January 2011, a US rail specialist told McClatchy:
California and America are squarely
in China's sights, said Christopher Barkan,
director of the Rail Transportation and
Engineering Center at the University of Illinois
at Urbana-Champaign.
On a tour of
China's largest rail manufacturer last summer,
Barkan met with a Ministry of Railways official
who prominently displayed a map of the United
States on his office wall.
"They are
extremely interested in the U.S.," Barkan said.
"We're the largest untapped market for
high-speed rail in the world."
[6]
Despite the convergence of US need
and Chinese desire, however, China may find itself
chugging steadily away from the California
opportunity instead of racing toward it. The
dreaded term "boondoggle" has been invoked, both
by mass transit supporters and critics, to
describe the gigantic project. [7]
Its
backers appear to have adopted the strategy of
"build it and they will fund," ie, get the project
started somehow and rely on a combination of
government optimism, inertia, and embarrassment to
pry loose the funds needed to keep the project on
track.
California voters approved a bond
issue for high-speed rail in 2008 based on
projections of costs and ridership that, in
retrospect, appear extremely rosy - $9 billion in
bonds was approved. The Obama administration
agreed to provide $3 billion in matching funds,
for a total of about $12 billion potentially
available so far - if the California state
legislature votes to actually issue the bonds
approved under the referendum. The current
projection for construction costs is $98 billion,
up from the $45 million bruited about at the time
of the bond referendum, leaving a rather hefty
shortfall.
In order to make the economic
case for the higher level of expenditure, CHSRA's
consultant, Parsons Brinckerhoff, made the
assumption that the rail line would carry an
astounding 116 million passengers per year when
completed - three or four times what is actually
expected. Parsons Brinckerhoff then calculated
that California's freeways and airports would need
$171 billion in capital expenditures to handle
this level of traffic if the rail line was not
built. Voila! $98 billion for the high-speed rail
was actually a tremendous bargain!
Of
equal if not greater concern is the prospect that
the line will operate in the red, and the state
and/or federal government will be on the hook for
the shortfall in operating costs if the hoped-for
ridership does not materialize.
In 2008,
the CHSRA put out a questionnaire, a "Request for
Expressions of Interest" in order to take the
pulse of potential investors, lenders, vendors,
and owner-operators. An interesting and unnerving
finding was that many potential partners put
little stock in traffic projections, preferring
something called "availability payments":
Although almost half of RFEI
respondents expressed little desire to accept
compensation based on future HST ridership ... a
majority of respondents communicated that they
would be willing to subject a portion of their
payment to performance guarantees ...
Concessionaires would be given periodic payments
based solely on the condition and/or performance
of the facility. [8]
Under this
scenario, if the operators achieved their
availability targets but ridership failed to
generate sufficient revenue to cover the
"availability payments", the HSRA would have to
make up the difference.
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