China’s economic engines of growth have begun to accelerate again, but you wouldn’t know it by looking at the chart below. After approvals for new railroad projects spiked to a five-year high in the third quarter of 2010, the number of new plans slowed, then completely halted throughout 2011, decreasing 89 percent by value, says J.P. Morgan.
There were multiple reasons for the slowdown in railroad construction, says BCA. A bullet train crash caused heightened concern for safety last summer. Also, the government intentionally delayed projects as it pulled the brakes to decelerate growth and curb inflation.
Since China received signs of slowing inflation over the past few months, it can now shift its attention toward growth. Recent policies are sending a “full steam ahead” message to railway investment. According to J.P. Morgan, in December and January, China announced tax benefits on interest income for railway bondholders, issued bonds for railway projects, and injected cash into the two largest train makers. This concerted effort should help the country meet its long-term goal to connect 100 percent of cities with a network of high-speed rail.
Over the past two decades, China’s railway system has come a long way very quickly, with track length increasing 50 percent since 1995. Demand has increased at a faster rate, though, as “passengers travelling on the country’s railway system per year doubled during the same period, while railway freight increased by 150 percent,” says BCA.
And, on a per capita basis, China’s rail length is much lower than most major economies, according to BCA Research. When you compare the total length of railways in developed and emerging markets, Australia has the most rail per capital, with 1.77 kilometers of railway per 1,000 persons; Brazil has considerably less, with only 0.15 kilometers of rail track per 1,000. However, as you can see below, China lands in last place for the total length of railway per capita.
Although China has been busy constructing its railways over the past few years, this comparison shows that this infrastructure buildout has been more of a “catch-up process,” rather than an “overshoot,” says BCA.
New! Webcast on China
Learn more about China and what’s expected throughout 2012 by joining CLSA’s Andy Rothman and me for a webcast on April 5. Register today for Hard or Soft Landing in China? Navigating China’s Transition to a Consumer-Driven Economy.
Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories. Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.” He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.
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