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With California Rebounding, Governor Pushes Big Projects

January 24, 2013 by Leave a Comment

Grasping at California’s vision of itself as a land of opportunity and a model for the rest of the nation, Mr. Brown said the state was rebounding financially after a difficult period. In a speech citing sources as varied as the Bible, Montaigne and Yeats, Mr. Brown said the state’s budget was now sound, but he also warned of profligacy, a remark that seemed directed at the Democratic lawmakers listening to him in the State Capitol here.

“The message this year is clear: California has once again confounded our critics. We have wrought in just two years a solid and enduring budget,” Mr. Brown, a Democrat, said in his third State of the State address since returning to office in 2011. “Against those who take pleasure, singing of our demise, California did the impossible.”

Mr. Brown spoke of wanting to reform school financing by empowering local school districts, and of continuing to lead efforts to fight climate change, like the cap-and-trade system for carbon emissions that went into effect recently.

Recalling the big infrastructure projects in the state’s past, Mr. Brown also voiced strong support for two big-ticket items that have drawn strong opposition: a bullet train that would eventually link Los Angeles and the Bay Area, and two tunnels that would funnel water directly from Northern California to more populated areas in the south.

“The London Olympics lasted a short while and cost $14 billion, about the same cost as this project,” he said of the tunnels. “But this project will serve California for hundreds of years.”

Mr. Brown’s speech came at what many are describing as a turning point for California after years of economic turmoil. The state’s economy is continuing to show signs of strengthening, with job growth and a housing market revival.

Fiscally, after years of ballooning budget deficits, the state is now projecting a balanced budget. In November, Mr. Brown surprised many by winning a hard-fought campaign to pass Proposition 30, a temporary tax surcharge that will pour $6 billion a year into the state treasury for the next seven years.

Still, Mr. Brown has repeatedly warned about the need to control spending. With Democrats now having supermajorities in the Senate and the Assembly, they can pass tax increases unilaterally. As experts predict that Democratic legislators will face pressure to increase spending, many are now describing Mr. Brown, long known as “Governor Moonbeam” for his eccentricities, as the only adult in the room.

Citing the story of Genesis and Pharaoh’s dream of seven cows, he said: “The people have given us seven years of extra taxes. Let us follow the wisdom of Joseph, pay down our debts and store up reserves against the leaner times that will surely come.”

In interviews, Mr. Brown, who served two terms as governor from 1975 to 1983, has brushed aside talk of his legacy. But in recent months, Mr. Brown, 74, who was treated recently for prostate cancer, has spoken about his mortality, mentioning the death of a close friend.

“This is my 11th year in the job, and I have never been more excited,” he said.

Article source: http://www.nytimes.com/2013/01/25/us/with-california-rebounding-governor-pushes-big-projects.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

China Begins Longest Bullet Train Service

December 26, 2012 by Leave a Comment

HONG KONG — China began service Wednesday morning on the world’s longest high-speed rail line, covering a distance in eight hours that is about equal to that from New York to Key West, Fla., or from London across Europe to Belgrade, Serbia.

Trains traveling 300 kilometers, or 186 miles, an hour, began regular service between Beijing and Guangzhou, the main metropolis in southeastern China. Older trains still in service on a parallel rail line take 21 hours; Amtrak trains from New York to Miami, a shorter distance, still take nearly 30 hours.

Completion of the Beijing-Guangzhou route — roughly 1,200 miles — is the latest sign that China has resumed rapid construction on one of the world’s largest and most ambitious infrastructure projects, a network of four north-south routes and four east-west routes that span the country.

Lavish spending on the project has helped jump-start the Chinese economy twice: in 2009, during the global financial crisis, and again this autumn, after a brief but sharp economic slowdown over the summer.

The hiring of as many as 100,000 workers for each line has kept a lid on unemployment as private-sector construction has slowed because of limits on real estate speculation. The national network has helped to reduce air pollution in Chinese cities and helped to curb demand for imported diesel fuel by freeing capacity on older rail lines for goods to be carried by freight trains instead of heavily polluting, costlier trucks.

But the high-speed rail system has also been controversial in China. Debt to finance the construction has reached nearly 4 trillion renminbi, or $640 billion, making it one of the most visible reasons total debt has been surging as a share of economic output in China, and is approaching levels in the West.

Each passenger car taken off the older, slower rail lines makes room for three freight cars because passenger trains have to move so quickly that they force freight trains to stop frequently. But although the high-speed trains have played a big role in allowing sharp increases in freight shipments, the Ministry of Railways has not yet figured out a way to charge large freight shippers, many of them politically influential state-owned enterprises, for part of the cost of the high-speed lines, which haul only passengers.

The high-speed trains are also considerably more expensive than the heavily subsidized older passenger trains. A second-class seat on the new bullet trains from Beijing to Guangzhou costs 865 renminbi ($139) one way, compared with 426 renminbi ($68) for the cheapest bunk on one of the older trains, which also have narrow, uncomfortable seats for as little as 251 renminbi ($40).

Worries about the high-speed network peaked in July 2011, when one high-speed train plowed into the back of another near Wenzhou in southeastern China, killing 40 people.

A subsequent investigation blamed flawed signaling equipment for the crash. China had been operating high-speed trains at 350 kilometers an hour (about 218 m.ph.), and it cut the top speed to the current rate in response to that crash.

The crash crystallized worries about the haste with which China has built its high-speed rail system. The first line, from Beijing to Tianjin, opened a week before the 2008 Olympics; a little more than four years later, the country now has 9,349 kilometers, or 5,809 miles, of high-speed lines.

China’s aviation system has a good international reputation for safety, and its occasional deadly crashes have not attracted nearly as much attention. Transportation safety experts attribute the public’s fascination with the Wenzhou crash partly to the novelty of the system and partly to a distrust among many Chinese of what is perceived as a homegrown technology, in contrast with the Boeing and Airbus jets flown by Chinese airlines.

Japanese rail executives have complained, however, that the Chinese technology is mostly copied from them, an accusation that Chinese rail executives have strenuously denied.

The main alternative to trains for most Chinese lies in the country’s roads, which have a grim reputation by international standards. Periodic crashes of intercity buses kill dozens of people at a time, while crashes of private cars are frequent in a country where four-fifths of new cars are sold to first-time buyers, often with scant driving experience.

Flights between Beijing and Guangzhou take about three hours and 15 minutes. But air travelers in China need to arrive at least an hour before a flight, compared with 20 minutes for high-speed trains, and the airports tend to be farther from the centers of cities than the high-speed train stations.

Land acquisition is the toughest part of building high-speed rail lines in the West, because the tracks need to be almost perfectly straight, and it has been an issue in China as well. Although local and provincial governments have forced owners to sell land for the tracks themselves, there have been disputes over suddenly valuable land near rail stations, with the result that surprisingly few stores and other commercial venues have sprung up around some high-speed stations used by tens of thousands of travelers every day.

Zhao Xiangfeng, a farmer in Henan Province, said a plan to build a mini-mall on his and six other farmers’ land near a station had been shelved indefinitely after he and three of the other farmers refused to lease the land for any price close to what the village leadership offered. He said he worried that local leaders might try stronger tactics on the farmers to force them to lease the land and revive the project.

The southern segment of the new high-speed rail line, from Guangzhou as far as Wuhan, 520 miles away, has been open for nearly three years and already suffers from heavy congestion, which could limit the number of seats available for travel all the way to Beijing in peak hours.

Mia Li in Beijing contributed research.

Article source: http://www.nytimes.com/2012/12/27/business/global/worlds-longest-high-speed-rail-line-opens-in-china.html?partner=rss&emc=rss

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Italy Plans New Measures to Liberalize Economy

January 21, 2012 by Leave a Comment

The measures come as Mr. Monti, a technocrat who assumed power in November, races to prevent Italy from falling into an “austerity trap,” in which the $40 billion package of tax increases and spending cuts passed in December to trim the budget deficit would cause a further contraction. The Bank of Italy has said that the country’s economy is expected to shrink 1.5 percent this year, while the International Monetary Fund forecast that it would contract 2.2 percent.

The changes, which are expected to be submitted to Parliament for approval soon, include allowing gas stations to choose their providers, speeding up the pace of the legal system, adding 5,000 more pharmacy licenses and accelerating the liberalization of local services. They would also add 500 slots for notaries.

“Italy’s economy has for decades been hindered in its economic and social growth by three big problems: insufficient competition, inadequate infrastructure and too much red tape,” Mr. Monti said at a news conference in Rome after an eight-hour cabinet meeting.

He said that his government, which in December raised the retirement age and re-introduced an unpopular property tax, had asked Italians for “many sacrifices.” But he said the new measures would help protect them from hidden costs that increase the cost of living.

Mr. Monti said that next week, his cabinet would approve a package of measures aimed at cutting bureaucracy and would continue work to loosen the country’s rigid labor laws in consultation with labor unions.

At the news conference, Industry Minister Corrado Passera said the cabinet had voted to release 5.5 billion euros, $7.1 billion, to finance or speed up infrastructure projects.

Economists said the new package of measures was the best Mr. Monti could do, as he struggled to encourage growth and cut spending at the same time.

“This was one of the only ways to jump-start the economy at zero cost because the government can’t give people money, tourism is no longer a draw and Italy has lost its attractiveness to foreign investors,” said Roberto Ravazzoni at Bocconi University in Milan.

Opening up the economy to greater competition was “the only way to go, if you want to give citizens some breathing room,” Mr. Ravazzoni said.

While it remains to be seen how much effect opening the so-called closed professions will have on growth, it is an important symbolic measure aimed at weakening the guilds and professional networks that inhibit competition and protect insiders, keeping prices high and making it difficult for young people to enter the labor market.

“More competition also means more opening, more space for the young,” Mr. Monti said, adding that the changes would create less space for “privilege and more recognition for merit.” The measures were “not only a big economic operation, but also a big social action,” he added

Such antiprotectionist measures have foundered in Greece, where guilds have powerful political connections that have helped block change. Mr. Monti faces much the same pressures as he tries to encourage growth and investment in Italy, which with a debt equivalent to 120 percent of its gross domestic product is the most indebted of the euro zone nations after Greece.

In the coming days, Italian lawyers are planning to go on strike to protest measures to reduce their minimum fees, and gas stations and other businesses are planning strikes or sit-ins. Pharmacies are upset at plans to allow more licenses. Prescription medications can be sold only in pharmacies.

After days of wildcat taxi strikes that have paralyzed Rome and other cities, the government backed down on its pledge to increase the number of taxi licenses.

The government said it would set up a new transport authority to discuss new licenses with local mayors. The taxi drivers are important supporters of Rome’s mayor, Gianni Alemanno, a player with the center-right People of Liberties party led by former Prime Minister Silvio Berlusconi, which is supporting Mr. Monti’s government.

At a hearing in Milan on Friday in one of his continuing corruption trials, Mr. Berlusconi, who left office in November, said that the austerity recipe in Italy had “not borne fruit,” the news agency ANSA reported. “We’re waiting to be called back,” he added.

Elisabetta Povoledo reported from Rome, and Rachel Donadio from Athens. Gaia Pianigiani contributed reporting from Giglio, Italy.

Article source: http://feeds.nytimes.com/click.phdo?i=14e6f39bb07c39795c56853a3d738822

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Endangered Dragon: Building Boom in China Stirs Fears of Debt Overload

July 7, 2011 by Leave a Comment

And the Wuhan Metro is only one piece of a $120 billion municipal master plan that includes two new airport terminals, a new financial district, a cultural district and a riverfront promenade with an office tower half again as high as the Empire State Building.

The construction frenzy cloaks Wuhan, China’s ninth-largest city, in a continual dust cloud, despite fleets of water trucks constantly spraying the streets. No wonder the local Communist party secretary, recently promoted from mayor, is known as “Mr. Digging Around the City.”

The plans for Wuhan, a provincial capital about 425 miles west of Shanghai, might seem extravagant. But they are not unusual. Dozens of other Chinese cities are racing to complete infrastructure projects just as expensive and ambitious, or more so, as they play their roles in this nation’s celebrated economic miracle.

In the last few years, cities’ efforts have helped government infrastructure and real estate spending surpass foreign trade as the biggest contributor to China’s growth. Subways and skyscrapers, in other words, are replacing exports of furniture and iPhones as the symbols of this nation’s prowess.

But there are growing signs that China’s long-running economic boom could be undermined by these building binges, which are financed through heavy borrowing by local governments and clever accounting that masks the true size of the debt.

The danger, experts say, is that China’s municipal governments could already be sitting on huge mountains of hidden debt — a lurking liability that threatens to stunt the nation’s economic growth for years or even decades to come. Just last week China’s national auditor, who reports to the cabinet, warned of the perils of local government borrowing. And on Tuesday the Beijing office of Moody’s Investors Service issued a report saying the national auditor might have understated Chinese banks’ actual risks from loans to local governments.

Because Chinese growth has been one of the few steady engines in the global economy in recent years, any significant slowdown in this country would have international repercussions.

As municipal projects play out across China, spending on so-called fixed-asset investment — a crucial measure of building that is heavily weighted toward government and real estate projects — is now equal to nearly 70 percent of the nation’s gross domestic product. It is a ratio that no other large nation has approached in modern times.

Even Japan, at the peak of its building boom in the 1980s, reached only about 35 percent, and the figure has hovered around 20 percent for decades in the United States.

China’s high number helps explain its meteoric material rise. But it could also signal a dangerous dependence on government infrastructure spending.

“If China’s good at anything, it’s infrastructure,” said Pieter P. Bottelier, a China expert at the Johns Hopkins School of Advanced International Studies in Washington. “But right now it seems the investment rate is too high. How much of that is ill-advised and future nonperforming loans, no one knows.”

For the last decade, as economists have sought to explain China’s rise, a popular image has emerged of Beijing technocrats continually and cannily fine-tuning the nation’s communist-capitalist hybrid. But in fact, city governments often work at odds with Beijing’s aims. And some of Beijing’s own goals and policies can be contradictory.

As a result, China’s state capitalism is much messier, and the economy more vulnerable, than it might look to the outside world.

In the case of Wuhan, a close look at its finances reveals that the city has borrowed tens of billions of dollars from state-run banks. But the loans seldom go directly to the local government. Instead, the borrowing is done by special investment corporations set up by the city — business entities whose debt shows up nowhere on Wuhan’s official financial balance sheet.

Adding to the risk, the collateral for many loans is local land valued at lofty prices that could collapse if China’s real estate bubble burst. Wuhan’s land prices have tripled in the last decade.

The biggest of the separate investment companies set up by the municipal government here is an entity known as Wuhan Urban Construction Investment and Development, created to help finance billions of dollars’ worth of projects, including roadways, bridges and sewage treatment plants.

Xu Yan contributed research.

Article source: http://feeds.nytimes.com/click.phdo?i=f67d56cff79d101647487e54c8181c62

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Inside Asia: Miners Keep Their Bets on China

June 20, 2011 by Leave a Comment

SINGAPORE — Nouriel Roubini, the professor of economics at New York University who warned about the risks of a financial crisis, is cautious about China, but resource companies are betting billions that rapid urbanization and economic growth will soak up the country’s spending on infrastructure projects and prevent a hard economic downturn.

They are buying up competitors, investing in new capacity and speeding the pace of expansion projects to feed the strong growth in China’s demand for raw materials.

In the past week, Noble Group, Nyrstar, Rio Tinto and Xstrata have announced plans to expand output or capacity — risky bets if Mr. Roubini’s vision for China proves accurate.

“There is a meaningful probability of a hard landing in China after 2013,” Mr. Roubini told a financial conference in Singapore. He is closely followed on Wall Street because he predicted the U.S. housing meltdown that precipitated the global economic crisis.

But his warnings are at odds with the actions of raw material producers.

Australian mining investment grew to $50 billion in 2010 from $20 billion in 2009, “and that suggests the miners don’t think Roubini’s scenario will play out,” said Ben Westmore, a commodities economist at National Australia Bank. “Those plans are likely predicated on some slowing in prices, but there is still obviously a lot of money to be made.”

The strong demand in China has helped bolster a commodities boom in the past seven years, with copper prices rising to records above $10,000 a ton, only briefly interrupted by the global financial crisis, from about $2,500 a ton.

Iron ore prices have leapt to almost $200 a ton from $32 in 2004.

Rio Tinto, one of the world’s largest iron ore miners, is speeding up plans to expand iron ore production 50 percent to 333 million tons a year by the first half of 2015, six months ahead of its earlier target. “The demand outlook continues to be strong, with supply lagging elsewhere in the industry, and we are seeing new supplies proving slower to materialize than predicted,” said Sam Walsh, the head of Rio Tinto’s iron ore division.

Xstrata plans to start exporting more iron ore to Asian buyers from Australia on Wednesday as part of a redesign of its Ernest Henry copper and gold mine in the northeastern part of the country, the company said. The upgrade cost 589 million Australian dollars, or $620 million.

Exports of the magnetite-type material at a rate of 1.2 million tons a year are a major component of Xstrata’s plan to transform the Ernest Henry mine from an open-cut design to an underground one, the company said.

Other companies are also seeking to expand capacity through mergers, including Nyrstar, the world’s biggest zinc producer, which wants to acquire Breakwater Resources of Toronto for 619 million Canadian dollars, or $630 million, as it carries out its strategy to buy more mines and increase self-sufficiency.

Mr. Roubini said investment was already at 50 percent of China’s gross domestic product and that sixty years of data had shown that overinvestment led to hard landings, citing the Soviet Union in the 1960s and ’70s, and East Asia before the 1997 financial crisis.

“I was recently in Shanghai and I took their high-speed train to Hangzhou,” he said, referring to a line that has cut traveling time between the two cities to less than an hour from four hours previously.

“The brand new high-speed train is half-empty and the brand new station is three-quarters empty. Parallel to that train line, there is a also a new highway that looked three-quarters empty. Next to the train station is also the new local airport of Shanghai and you can fly to Hangzhou.”

But other analysts have argued that China’s immense urbanization program meant that although some infrastructure projects might be underutilized at present, the projects would gain users in the years to come.

“You don’t build infrastructure expecting to run at capacity on Day 1,” said an analyst in Shanghai, who was not authorized to speak to the news media. “You build based on future demand.

“The other question you need to ask is what is a hard landing for an economy growing at 10 percent? Is it a slowdown to 5 percent? Even that implies, assuming demand for commodities rises in line with G.D.P., an additional 400,000 ton of copper or more than 30 million ton of iron ore. China is about ‘boomsday.’ The risk of ‘gloomsday,’ let alone doomsday, is slim.”

About half of the people in China live in cities and towns, according to a census in April, up from 36.1 percent in 2000, although the previous census used a different counting method. If that trend continues, over the next 10 years about 200 million Chinese from rural areas will need new housing, workplaces and household goods in urban areas.

“The massive amounts of infrastructure just to keep up with population growth even as it slows will mean any dip will be well supported,” said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.

Nick Trevethan is a Reuters correspondent.

Article source: http://feeds.nytimes.com/click.phdo?i=49fb08cd40ef75d6683edb0222dccb90

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