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China gets on board building the rails

Scott Tong Feb 26, 2008

China gets on board building the rails

Scott Tong Feb 26, 2008


Lisa Napoli: All aboard, investors. A blockbuster IPO today out of China. A state-owned railroad builder is hoping to raise $5 billion. Marketplace’s Scott Tong says China desperately needs more tracks.

Scott Tong: Chinese trains are working on the railroad harder than any other trains in the world. They carry a quarter of the world’s rail traffic — on just 6 percent of the tracks. Every winter, 10 percent of the world’s most populous country heads home by train over the Chinese New Year holiday.

William McCahill is with the consulting firm JL McGregor:

William McCahill: The railways moved 130 million people in the space of two and a half weeks. That’s something like the population of Brazil. And it was a slow year.

But there aren’t nearly enough tracks. McCahill says in the case of cargo, the system meets just 30 percent of demand.

McCahill: It’s probably the single most serious set of chokepoints to economic growth.

So China plans to build on a scale the world has never seen before. From 45,000 miles of track today to 60,000. The investment plan is $16 billion a year, and today’s IPO of the China Railway Construction Company will raise about a third of that.

Industry analyst Chu Hai:

Chu Hai (voice of interpreter): Railroad funds in the past came from the central government. But that’s not enough. They also need money from private banks and the capital markets.

For foreign investors, the new lines mean access to new markets.

Consultant Kent Kedl says it’s kind of like the interstate highway coming to town: It
puts even smaller towns on the commercial map. His example:

Kent Kedl: Fargo, North Dakota, right on highway 94 there. There’s you know, kind of a running joke about things being out in Fargo means they’re way the heck out there and who really wants to go there. But it’s on the highway.

The rail company was once run by the People’s Liberation Army. But Kedl wonders if the government — which is now in charge — can coordinate the sprawling new network.

Kedl: China is like a 7″2 teenager, playing basketball. He’s got the size to dunk it. Every now and then pulls off a move like you wouldn’t believe. But more often than not kind of tripping over his feet sometimes and not really all that coordinated.

Kedl thinks China will get there. And when it does, the economy may chug along even faster than it does today.

In Shanghai, I’m Scott Tong for Marketplace.

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