China Still Interested in CA HSR – But So Are Others

Apr 28th, 2010 | Posted by

A few weeks back, a group of political and business leaders from the East Bay traveled to China for economic development meetings. One common topic was the NUMMI auto manufacturing plant in Fremont that closed last month – which relates to another of the topics discussed, high speed rail:

China has expressed great enthusiasm for being part of the project, with offers of technology, expertise and money. Where better could some of those resources be employed than, say, at the Nummi plant?

“It’s entirely possible,” said David Crane, Gov. Arnold Schwarzenegger’s special adviser for jobs and economic growth. “For example, it’s highly likely the railcars will be built in California,” he said, noting that General Electric Co. and China’s Ministry of Railways have a joint railcar venture aimed at the U.S. high-speed rail market.

But China is not the only game in town. Six other countries in addition to China have signed memorandums of understanding with California to explore the full range of opportunities. No matter who provides them, “we want manufacturing, services and capital brought to California,” said Crane, including the $12 billion in outside financing the California High Speed Rail Authority is looking for.

He didn’t have to say which of those seven countries is the most flush with cash these days.

Crane is also a member of the CHSRA board, so his words do carry extra weight. And this is perhaps the clearest statement that not only is China planning to bring some money to the table, but that other countries are as well. In fact, the “private financing” may no longer be the accurate term to describe the third source of money (in addition to state and federal contributions) – the term “outside funding” is appearing and would be more fitting if other countries are looking at directly contributing funds to the project.

In one sense, it’s sort of ridiculous that we’re even looking to other countries for funding. The US is still the wealthiest nation on earth and can easily afford the $40 billion plus cost of the California HSR system. But we’re not willing to go get that money because policymakers in Sacramento and Washington, DC are more afraid of anti-tax sentiment than they are interested in developing a domestic HSR network and industry.

So we’re left to look for funding from other countries, who can hopefully help fund part of the capital cost in exchange for some unspecified revenues. That doesn’t mean the private sector is out, far from it – I expect that private funding will still be a part of whatever “outside funding” model is eventually selected.

But the use of funds from foreign countries does open a very interesting possibility. Although a revenue guarantee isn’t necessary for private investors, and although it seems pretty clearly ruled out by Prop 1A, there remain arguments that a revenue guarantee is still necessary. If a foreign country is going to help provide some funding, then it would seem that the federal government has an interest in making sure the investment isn’t lost. The feds, then, could provide the revenue guarantee, ensuring the provisions of Prop 1A are upheld (no state funds would be going to the guarantee) as well as any possible needs of a private investor.

To be clear, I’m not saying that would be a good idea, or even that it would be necessary. But it’s one possible option for dealing with this.

Ultimately the significance here is that while there is some doubt out there about whether HSR is going to happen, indications remain that both the needed federal funding and the “outside” funding will materialize.

Note: I’m writing this from Seattle, where I’ll be spending the next few days catching up with old friends. That shouldn’t impact the posting frequency, but if there’s a day without a post, now you know why.

  1. Al-Fakh Yugoudh
    Apr 28th, 2010 at 17:47
    #1

    Is Greece one of those seven countries? Probably not.

    However Spain may also follow the Hellenics in the same destiny and the rest of the EU is not flush with cash either after helping them.

    California HSR may indeed have to settle for help from the Chinese, after all.

    Dan Reply:

    This may sound bizare for those who have not worked directly with companies in mainland China, but I actually think chinese companies are less corupt and easier to work with than many in America and Europe. if nothing else, they’re more up-front about what they expect and very focused/driven. Moreover, China has some impressive HSR technology (adapted from other folks, certainly); there are quite a few steps down from “settling” with China.

    //dan.

    TomW Reply:

    Spain’s current finanical woes are not the result of investing HSR. It is primarily the result of a collapse in house prices, and hence construction, which formed a big part of Spain’s economy.

    Bobierto Reply:

    Another way that Spain and California are similar …

  2. swing hanger
    Apr 28th, 2010 at 21:04
    #2

    The Japanese government has approved a state-backed bank, the Japan Bank for International Cooperation, to provide loans for HSR projects in advanced economies (the JBIC normally only provides loans for projects in underdeveloped economies). However, it is largely seen as a move to allow Japanese firms to even the playing field with competitors that already have long established state support, such as in South Korea or France, not to mention China.

    http://www.forexyard.com/en/news/Japan-eyes-new-strategy-for-infrastructure-exports-2010-04-28T065209Z

    Risenmessiah Reply:

    Japan is actually preferrable to China because their currency floats. Ergo, the Japanese can offset buying new US debt by making contributions to the HSR project.

    The Chinese, by virtue of the peg might be pledging more dollars, but probably can’t make good on those promises in terms of purchase power.

  3. ks
    Apr 28th, 2010 at 21:20
    #3

    Does China’s offer to fund the project imply that contracts must be awarded to Chinese train-maker?

    Samsonian Reply:

    It’s generally assumed they’re providing financing so their companies get contracts for work. As others have mentioned, while trainsets are the most visible part of the system, they’re a very small part (<10%) of the project.

    TomW Reply:

    Further, even if the Chinese companies build the trains, they will probably be forced to build them in California.

    adirondacker12800 Reply:

    It may be cheaper to build them in California.

    jimsf Reply:

    they damn sure better build them in california. We are paying for jobs, so bring us jobs.

    adirondacker12800 Reply:

    Federal taxpayers are going to be paying for most of it and if it’s cheaper to build them in Illinois they’ll build them in Illinois.

    Peter Reply:

    They’ll still have to spend MOST of the money in California. Infrastructure is expensive. Trainsets are cheap, relatively speaking.

    jimsf Reply:

    Federal taxpayers are going to be paying for most of it and if it’s cheaper to build them in Illinois they’ll build them in Illinois

    Once California stops paying more than it gets back, and supporting the other [welfare]states with our tax dollars, then the other states can bid on our jobs. Until then, we contribute the most to America’s economy, and we should get the jobs. Build california trains in california. In my opinion anyway.

    Alon Levy Reply:

    Illinois actually runs a bigger tax imbalance than California.

    adirondacker12800 Reply:

    Yeah but Illinois doesn’t have palm trees or BART so it doesn’t count. And it’s on the wrong side of the Sierra Nevada.

    Maxi Reply:

    The difference is military spending. Illinois doesn’t have San Diego, or much in the way of defense contractors. I think we have more pensioners too.

    jimsf Reply:

    adirondacker12800 Reply:
    April 29th, 2010 at 8:27 pm

    Yeah but Illinois doesn’t have palm trees or BART so it doesn’t count. And it’s on the wrong side of the Sierra Nevada.

    or movie stars or chez panisse. Its ok though, you can visit.

    jimsf Reply:

    Though adirondacker – I will have to give NY some kudos…. used to be that SF was well known for having Lombard, “the world’s crookedest street” I think NY has stolen that distinction. ;-D

    Thank you, Ill be here all week.

    Alon Levy Reply:

    Adirondacker, your anti-California digs would be a lot more credible if you didn’t also boost operations in the Northeast, home to such inventions as the $1.7 billion/km subway line and the POP inspection that forces the bus to stand still.

    adirondacker12800 Reply:

    at least the Northeast has subways and buses to complain about.

  4. Ted Crocker
    Apr 28th, 2010 at 22:11
    #4

    What form would China’s money come in; gift, loan, or guarantee? I’m not seeing a gift. Am I wrong?

    YesonHSR Reply:

    A nation that invests 300 billion US dollars in railroads wiil have no probelm putting up 20 billion for CAHSR..NOW why cant this society get pastits Walmart brain?..why because they/you are lame

  5. jimsf
    Apr 29th, 2010 at 00:01
    #5

    do they wanna build it or do they wanna operate it?

  6. YesonHSR
    Apr 29th, 2010 at 00:10
    #6

    Ted is the person in the news article in the Merc that held a sign up trashing HSR…Ted about that school in Ohio did you see that High school compared to the run down semi trailer school in burlingame?
    now thats a high school and right next to a busy main line (NS) freight railroad(30 heavy trains a day)
    they do very well..

    Nadia Reply:

    Ted’s sign talked about an UNDERFUNDED HSR not actually bringing any jobs. The point being, for this to be done right, we need more money.

    The money thus far is a drop in the bucket. It is just one of the major problems with the business plan – they don’t have the commitment for the money from the Feds.

    Joey Reply:

    Perhaps you haven’t seen the news. ;)

    Sure, there is no commitment yet, but given the sheer number of states that applied for HSR stimulus funding, I would expect a dedicated funding source to have strong support in congress.

    Robert Cruickshank Reply:

    That’s not a problem with the business plan, is a factor that must and has been accounted for.

    The best move for all of us would be to emphasize the need for federal funding. I hope folks on the Peninsula, even if they’re HSR skeptics, contacted their members of Congress through the FourBillon.com site this week. A unified call for federal funding would do wonders.

    There remains every reason to believe the federal government will come through with the money. But it is better to work to ensure it happens.

  7. Samsonian
    Apr 29th, 2010 at 03:29
    #7

    I don’t consider news of this type of as a positive development. Giving away what amounts to ownership in a large infrastructure project like this, is the epitome of penny-wise, pound-foolish.

    This country needs to get its spending priorities in check, and find the money for large infrastructure investments from within. Even if you have to borrow money, and issue bonds to finance these projects, it’d still be worthwhile. In fact, that’s the whole purpose of bonds in the first place. To pay for things that have large up front costs, but provide long lasting benefits.

    Borrowing isn’t inherently bad. It’s what you’re using it for that matters (in addition to how much and on what terms). If you borrow some money to finance your college, that probably makes sense, because you’re investing in yourself and your future labor value will increase. If you borrow to buy that big screen TV, new car, etc. that you can’t really afford, then that’s probably a bad financial decision, and your chickens will eventually come home to roost.

    TomW Reply:

    In other words, what you buy with the borrowed moeny must produce a greater finanical benefit to you than the total cost of the loan.

  8. Roger Christensen
    Apr 29th, 2010 at 09:29
    #8

    Off topic – tonight there is an HSR meeting in Fullerton – which is still officially an option for a station between LA and Anaheim.

  9. jimsf
    Apr 29th, 2010 at 09:58
    #9

    Lets take a look at what america can or can’t afford … note: numbers are in billions I find it fascinating that this just lumbers along sans outrage, but 40b for hsr is the end of the world. I mean look at the totals.

  10. jimsf
    Apr 29th, 2010 at 10:07
    #10

    I mean thats 1.08 TRILLION just for THIS year. 3.2 trillion over 9 years. 3.2 trillion is 3,200 billion. CA HSR is 40 billion. YOu can get 80 ca high speed rail projects with that. There are only 50 states. you could build a full blown ca high speed rail system in every state and still have enough for 30 more ca hsr systems left over to buy hsr for canada and mexico.

    and not a peep of out anyone. but god forbid we bail out american workers. This is such bullshit. And if there is really such a big threat from these countries why is america the only one concerned?

    Victor Reply:

    Yeah anyone who does that would be copying FDR, I can just see the protesters now, Some lining up for jobs and some still wanting to stupidly picket, I think Forest Gump had It right, “Stupid is as Stupid does”. Still You’d think Congress would get behind HSR, But I think the reason is some Republicans in Congress see HSR as a waste of money and something they don’t want or need. As they probably think HSR is an idea from the Left.

    YesonHSR Reply:

    Makes you want scream out loud anytime some goof talks about the ‘high cost’ of HSR

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