Economy/Resources - 100. page

China tops the world with its advanced high speed rail system. As of the end of 2018, China’s high-speed railway operating mileage reached 29,000 kilometers (18,019 miles). The statistics, however, suggest that China has also paid a huge price which may take a number of generations to pay back. Radio Free Asia published an article that Caixin initially reported. It describes the financial risk that China’s high speed rail system faces. The data shows that China’s high speed rail is facing a huge debt and financial losses. The risks can be summarized in the following five areas:

First, China’s high speed rail relies mainly on debt financing. The debt that China Railway General (formerly the Ministry of Railways) had has since soared from 476.8 billion yuan (US$70.39 billion) in 2005 to 4.72 trillion yuan (US$700 billion) in 2016. China Railway has always kept the financial data of the high speed rail strictly confidential, but from its published debt and revenue data, it can be concluded that, even if the operating cost of the high speed rail is not considered, the total transportation revenue of the high-speed rail is not enough to pay the interest on the loan for the construction of the high speed rail.

Second, most of the high speed rail is losing money. Other than the rail between Beijing Shanghai and Beijing Guangzhou, most of the other rails are way below capacity. There are only four rails running between Lanzhou to Xinjiang compared to a daily capacity of 160. The ticket revenue can’t even cover the cost of electricity. Even for the busy route from Beijing to Shanghai, the capacity utilization rate of number of passengers per kilometer is only half of that in Japan.

Third, since the high speed rail has a weight limit, the transportation of goods had to be shifted from railway to ground. The market share of China’s railway freight volume (excluding ocean shipping) has dropped rapidly from 50 percent in 2005 at 3 percentage points per year to only 17.1 percent in 2016.

Fourth, the high speed rail drove up the cost of freight. China Railway has relied on a continuous increase in the price of railway freight to make up for the serious losses of the high speed rail, thus driving the cargo owners to use ground transportation. Hence the increase in the ground transportation cost.

Fifth, freight transportation is heavily dependent on roads which aggravate air pollution. The rapid decline in the market share of railway freight transport has led to a large amount of basic raw materials that rely on ground transport, which has increased air pollution. This problem is more prominent in densely populated areas such as the Beijing-Tianjin-Hebei region and the Yangtze River Delta.

Source: Radio Free Asia, January 29, 2019
https://www.rfa.org/mandarin/Xinwen/wul0129-01292019030949.html

The fertility situation in Shandong is a barometer for China’s national child birth rate. However, the province is going through a significant change in its population structure.

Since the implementation of the two-child policy, Shandong Province, which was once called, “China’s most productive province for child birth,” has been losing its position in fertility willingness. Recently, several prefecture-level city health planning committees or municipal governments in Shandong province published the number of births for some months in 2018. The reporter noted that the number of births has declined in different degrees.

Take Qingdao as an example. According to data that the Qingdao Municipal Government released, the indications are that, in 2018, around 90,000 babies were born among the registered population of Qingdao, which is a significant decline. Figures show that the population born from January through November fell by 21.1 percent and the number of second child births fell by 29 percent. In Yantai, Liaocheng, Dezhou, and other large cities with a permanent population of more than 5 million, the number of newborns also declined in 2018.

Source: National Business Daily, January 9, 2019
http://www.nbd.com.cn/articles/2019-01-09/1289523.html

In order to prevent the illegal outflow of capital, the China’s Supreme Court and the Supreme Procuratorate recently issued a judicial interpretation that if an underground bank conducts illegal trading of foreign exchanges and the amount is more than 5 million yuan (US$ 0.8 million), or the illegal income is more than 100,000 yuan (US$ 14,800), the crime will be punished under the charge of illegal business acts and the “circumstances are serious.”

According to the official media, in practice, the underground banks’ illegally trading in foreign exchanges mainly takes the traditional form of direct transactions within borders. The current, more popular and disguised ways of trading in foreign exchanges are across borders.

The disguised trading of foreign exchanges is not a direct exchange between the yuan and the foreign exchange, but an act of repaying the yuan-denominated debt in foreign exchange, or repaying foreign exchange-denominated debt in yuan, or the swap of foreign exchange and the yuan to fulfill the trading. According to the report, the cross-border payment is a typical disguised trading of foreign exchange. Underground bank criminals would collude with foreign individuals, enterprises, and institutions, or make use of overseas bank accounts for the purpose of cross-border remittances and transfer of funds. At present, the main business of most underground banks is the cross-border payment, which leads to huge capital outflows.

According to the judicial interpretation, engaging in illegal payment settlement business or illegal trading of foreign exchange, if falling into one of the following two circumstances, should be regarded as illegal business acts and the “circumstances are serious.” One, the illegal business amount is more than 5 million yuan (US$ 0.8 million). Two, the amount of illegal income is more than 100,000 yuan (US$ 14,800). The interpretation of illegal business acts and “circumstances are particularly serious” is either the illegal business amount is more than 25 million yuan (US$ 3.7 million) or the amount of illegal income is more than 500,000 yuan (US$ 74,000).

Article 225 of the Chinese Criminal Law stipulates that those who commit the illegal business acts, and when the circumstances are serious, are to be sentenced to not more than five years of fixed-term imprisonment in criminal detention, and may, in addition, or exclusively, be sentenced to a fine not less than 100 percent and not more than 500 percent of their illegal income and, where the circumstances are particularly serious, be sentenced to not less than five years of fixed-term imprisonment and a fine of not less than 100 percent and not more than 500 percent of their illegal income or the confiscation of their property.

Source: Central News Agency, February 9, 2019
http://https://www.cna.com.tw/news/acn/201902090145.aspx

Well-known Chinese financial site Caixin recently released its official Chinese Manufacturing PMI index number for January, which was 48.3. The January PMI number was the lowest for the manufacturing sector since March 2016. The new orders sub-index showed another month of decline, especially on the domestic demand side. Exports saw an increase and experts expressed their belief that the rebound was the direct result of the temporary pause of the China-US trade war. The January number also indicated that the manufacturers have been reducing head counts and unemployment has gotten worse. In the meantime, raw material prices and consumer product prices have both dropped. The Caixin report expected a continued slowdown of the Chinese economy. Caixin PMI is a well-respected economic indicator monitored globally by financial institutions. PMI (Purchasing Managers Index) is an indicator of financial activity reflecting purchasing managers’ acquisition of goods and services. A PMI number below 50 typically reflects a decline.

Source: Caixin, February 1, 2019
http://pmi.caixin.com/2019-02-01/101376926.html

National Business Daily reported that, according to China’s Social Security Annual Report for 2016, several provinces in China had a negative cash flow in their pension fund accounts (they received lower pension contributions than the amount of pension distributions). Heilongjiang Province not only had a negative cash flow for 2016; it also depleted all of its previous pension fund savings. Its pension fund has a debt of 23.2 billion yuan (US$3.5 billion).

The number of provinces with net negative cash flow increased from six in 2015 to seven in 2016, including Heilongjiang, Liaoning, Hebei, Jilin, Inner Mongolia, Hubei, and Qinghai.

According to the China Pension Actuarial Report 2018-2022, without counting the government’s subsidy, the total of pension contributions for all employees working in companies would be short of 256.2 billion yuan (US$38.4 billion) in 2018 and will be short of 533.6 billion yuan (US$80 billion) in 2022.

Some southern provinces, such as Guangdong Province, still have a huge surplus. Thus, some scholars have suggested using the southern provinces’ surplus to cover the northern provinces’ deficit.

China’s pension system is a pay-as-you-go system, requiring employers to contribute a maximum of 20 percent of employees’ earnings to cover the basic pension while the employees contribute eight percent of their earnings for a second-tier pension.

Source: National Business Daily, January 21, 2019
http://www.nbd.com.cn/articles/2019-01-21/1293179.html