Understanding that high-speed rail (HSR) could provide millions of Americans with a cleaner, more efficient way to travel, President Barack Obama allocated $13 billion to its development over the next five years as part of the American Recovery and Reinvestment Act (ARRA) passed in February.
But Obama’s high-speed rail initiative has gotten off to a sluggish start, while a much bigger, $300 billion plan to create the world’s largest and most sophisticated high-speed rail network is already rapidly unfolding in China.
“Railroads were always the pride of America, and stitched us together. Now Japan, China, all of Europe have high-speed rail systems that put ours to shame,” Obama said in April.
In a proposal called “A Vision for High-Speed Rail in America” Obama and the Federal Railroad Administration outlined a plan to develop 10 “potential” 100-600 mile corridors in the United States, “similar to how interstate highways and the U.S. aviation system were developed in the 20th century.”
Developing all 10 high-speed corridors could eliminate 6 billion pounds, or about 3 million tons, of greenhouse gas emissions each year, the FRA said.
But the plan was pitched as more than a way to make travel cleaner and more efficient. It was touted as a way of creating jobs. In April, when Obama gave his speech, the unemployment rate stood at 8.9%. It’s since risen to 9.4% in July and will likely test 10% by the end of the year.
Meanwhile, the FRA has until 2012 to disperse the first $8 billion of the total $13 billion allocated to high-speed rail. And when that money is finally paid out, it’s more likely to go towards upgrading existing infrastructure than laying new high-speed rail.
"No one expects we are going to begin, let alone complete, the high-speed rail system with $8 billion," FRA spokesman Warren Flatau told CNNMoney. But the stimulus funds represent the "groundwork for a more sustainable program of funding in the future."
The remaining $5 billion has been included in the president’s budget over the next five years.
Already, it that amount seems to be woefully inadequate. Last month, more than 40 states submitted 278 pre-applications for stimulus-funded high-speed rail projects. The total amount of funds requested amounted to $102.5 billion in requests, according to CNN.
China Fast-Tracks High Speed Investment
High-speed rail may be on its way to the United States but it’s already arrived in China.
China introduced a 270mph maglev train service in March 2004 and regular high-speed train services in April 2007. But it’s not stopping there.
Beijing will spend $50 billion on high-speed rail this year alone, and the central government plans to spend another $250 billion over the next decade. By 2020, China will have laid nearly 16,000 miles of high-speed track capable of carrying the fastest trains on the planet. By comparison, America has just 457 miles of high-speed track.
And unlike in the United States, China’s high-speed railroad initiative is already producing jobs. So far, the construction of the Beijing-Shanghai high-speed route alone has created about 110,000 jobs and is playing an enormous part in China’s economic recovery.
Spending on railways jumped 126.5% year-over-year in the first half of 2009, leading to a huge increase in the nation’s steel production at a time when global demand was decidedly weak. China's crude steel output in July reached a record 50.68 million metric tons, up 12.6% compared with last year, according to figures from the National Bureau of Statistics.
There is no doubt that “the acceleration of [the massive railroad build-out is playing a key role in China’s recovery,” David Li, an economist at Beijing’s Tsinghua University told Fortune.
Liang Yi, the vice CEO of the China Railway Construction Co. (CRCC) subsidiary working on the Beijing-Shanghai route told Fortune that his company may hire up to 20,000 new university grads to meet the growing workload. Liang said his unit alone is absorbing 8,000 more workers this year than it did last.
Of course, that doesn’t mean Chinese companies are the only ones profiting from China’s railroad expansion.
International Business Machines Corp. (NYSE: IBM) won a contract to provide software for high-speed trains the Guangdong province. Also, IBM last month announced that it was opening a “Global Rail Innovation Center” in Beijing.
“In the next five years, China is investing more in high speed rail than the rest of the world combined,” Keith Dierkx, the director of this new center, told TheInfrastructurist.com. “This enormous build out of the HSR frees up their traditional rail network for freight. So, they’ll have more high-speed rail than the rest of the world combined–but they’ll also be getting better freight capacity.”
Canada’s Bombardier Inc., the world's largest rail equipment manufacturer, also got in on China’s massive HSR initiative when it won a contract for work on 40 high-speed trains, as well as a signaling system.
Fortune estimates that foreign companies have won about $10 billion worth of contracts for work on China’s high-speed rail system.
Still, Money Morning Investment Director Keith Fitz-Gerald believes that the best way to capitalize on China’s massive rail build-out is by investing in Chinese companies that will have a long-term presence.
“There’s certainly hay to be made on high-speed rail development in the United States, but if you really want to capitalize on this trend you should look at China, which accounts for 25% of the world’s railroad traffic but has only 6% of the world’s rails,” Fitz-Gerald said. “To the extent that China builds high-speed rail, then effectively railroad companies across the country will benefit from increased traffic.”
In GSH) as company that has good long-term prospects in China’s transportation sector., Fitz-Gerald named Guangshen Railway Co. (NYSE ADR:
“Guangshen is involved in high speed, it’s involved in capacity and it’s got relatively low debt,” said Fitz-Gerald. “It’s just another example of a Chinese company capitalizing on a huge infrastructure expansion that’s backed by billions of dollars in government investment.”
Guangshen’s 2008 operating revenue jumped 11.23% in 2008, in part because of HSR development.
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