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China's High-Speed Rail System: Boom or Bust?

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Over the past decade, China has become nearly synonymous with economic growth. The country has continually posted double digit GDP growth and the IMF predicts that China may become the largest economy by 2016. These predictions have some US economic analysts pondering: "should we be concerned about China?"

We can evaluate factors affecting the answer to this question by using Recorded Future to analyze open source information about the Chinese economy, specifically infrastructure projects. By examining China's highly touted innovation and leadership in high-speed rail, we find that recent safety issues, government censorship, and public doubts over safety expose a likely slowdown in progress for the country's infrastructure.

China's Ambitious Rail Plans

There is no doubt that the high-speed railway market in China has been red hot in recent years, and one source indicates that China's high speed railroad track mileage may exceed 16,000 kilometers by 2020. The government is also spending billions to expand into less-populated areas, "as the first long-distance high-speed rail line in west China, the second line of Lanxin Railway has a planned investment of more than 140 billion yuan ($21.91 billion)."

What else can we learn about the future of the Chinese high speed railroad network?

But not all is well with the development of the Chinese high-speed rail system, and a deadly crash this past July exposed serious safety and regulatory shortcomings.

Public Criticism and Falling Investment

The subsequent attempt by the Chinese government to censor information about the disaster evoked tremendous public backlash that now threaten to significantly slow proposed projects. Bloomberg also reported that many projects were temporarily halted following the accident, which is likely to have an impact on the completion date, if not the long term development, of China's expanding rail system.

What kind of impact did the train crash have on the rail industry in China?

Above, we filtered results about China's railway system to only those articles published after the crash on July 23rd. What do we find? We quickly see that China's high-speed rail system is in big trouble.

Railway industry analyst Lu Zhou seems to have summed it up best: "A Great Leap Forward-style movement in China's high-speed railway is changing abruptly to a period of silence, and that could last a few years". Investment in high speed rail has already taken a substantial hit, with seven out of 28 railway firms in China reporting losses.

Two key points from the Xinhua News Agency that are particularly troubling:
  • According to statistics from the Ministry of Railways (MOR), growth in the country's railway fixed-asset investment has been on the decline, from a 25.6-percent year-on-year increase in January to a 21.8-percent year-on-year decline in July.
  •  China Railway Erju Co. Ltd., a leading railway construction enterprise, reported net profits of 395.57 million yuan (61.91 million U.S. dollars) in the first half of the year, a 12.24 percent drop year-on-year.
The train crash in Wenzhou had a significant impact on the high-speed rail industry in China. For the first time since the 1990s, train speed is expected to slow down. Some train makers have halted production, and the $5 billion expected IPO of Beijing-Shanghai High-Speed Railway was suspended after the crash. One Chinese official indicated that, "upcoming safety checks on the country's high-speed railway network are necessary to raise the government's credibility". These indicators suggest that a serious problem exists within the Chinese high-speed rail system.

Understanding Public Sentiment in China

Another angle to consider when using Recorded Future is the data mined from Chinese language sources. In the graph below, we conducted a search similar to the one above but using only Chinese language texts. One article on China Dialogue discusses the end of the invincibility myth of the Chinese high-speed rail system. An editorial in the Financial Times then defends the railroad system and urges for its continued development.

We also performed a search for any future facing railway information in Chinese. One of the most useful articles was a translated version of another Financial Times article that discussed the recent accident. The article discusses potential problems that the government may now face in rail, "5 years ago, the Chinese government invested heavily in the hope that [it would] in record time...[become] the world's largest high-speed rail network. Intention is to stimulate the construction of high-speed rail and improve the efficiency of national pride, but [the railway] has now become...embarrassing".

Potentially even more interesting is the wealth of social media data can be found at the bottom of the article in 116 comments. These comments were made by Chinese speakers, most of whom are located within China, and some are particularly candid: "I am struggling to find confidence in the government, but it is really difficult. Too much logic lies."

Conclusion:

Debates like these are fairly rare in China where citizens are often discouraged from criticizing the government. The railroad system is a crown jewel for the Chinese government, and it is clearly not too pleased with the criticism. However, the government faced tremendous public backlash that forced it to reduce the level of censorship.

The very nature of this debate can be seen within the above mentioned comments as nationalists and government skeptics battled it out online. Thousands of people viewed these comments and over a hundred commented, showing that this became a highly salient issue in China. The end result, based on media analysis, public sentiment, and financial data suggests that Chinese high-speed rail development is in serious trouble and may be slowed for years.