The Next Evergrande? China’s $2 Trillion Railway Debt Bubble

The Next Evergrande? China’s $2 Trillion Railway Debt Bubble

By Wall Street Millennial


The growth of high speed rail in China. Over the past decade, China has invested hundreds of billions of dollars in building the world’s largest and most sophisticated high speed rail network. However, many of the new rail lines lack economic viability and create billions of dollars of losses for the state-run rail company. Currently, the state-run rail company has $900 billion of debt, or roughly three times the size of Evergrande’s total liabilities. We look at why China’s high speed rail network is losing so much money and whether the debt will have wider implications for the Chinese economy.

Here’s what others had to say:

So stock valuations are in a bubble but art valuations which have increased even more and have even less utility in a market crash is worth investing in… seems legit. Normally I have some respect for you. I think your analyses are well reasoned and well researched. However, it felt like you were just reading for a script. 3:20 It makes no sense that you can invest in these artworks for a “fraction of what they paid to purchase.” I think what you mean to say is you can purchase a fraction of the artwork at the prorated price.

Dr. Manuel Kuehner
I really enjoy the channel and often watch the videos during lunch break. However, the recent addition of in-video sponsor content is a major pain point. The sponsor content is too long relative to the overall length. Also, I would appreciate if the sponsored content is clearer highlighted to be better distinguishable from the rest of the video.

Still better than California’s rail debt. We spent $30+bil to build nothing.

It’s almost as if the last ten years of investment-driven growth has funded projects that may never generate any real economic returns. Wouldn’t that be something?

The train line to Xinjiang province wasn’t constructed to profitable, it’s more of a geopolitic play, that area is problematic to the chinese goverment.

Nagendra Mishra
China uses its high speed rail for everything be it Cargo transportation or military purpose
Most border area raillines are build for military purpose
And I think raillines are far more better than building Highways 🤷 and car dependent cities

Bevan Lovejoy
Reminds of me of what I read about Britain’s “railway-mania” of the 1840’s – that did not end very well either.

Alternative investments like fractional art seem inappropriate and felt really off brand for WSM :/ I hope you get a more productive and non-speculative sponsor soon

Railways don’t need to be profitable when they create so much economic growth.
Increased tax revenues can pay down the debt

John Ashmore
Don’t sell out to shady “alternate asset markets” scammers. Sorry, I mean investment management specialists.

The question is what China will do after their economy fully collapses. They’ve been preparing for war for the last 20 years, is it far-fetched to imagine them going into the offensive once their regime starts breaking down?

BaoBou’s Music
I am more than happy to criticize China on Human Rights (HK, Xinjiang) and unsustainable growth, but in this case, I don’t think you can simply treat rail lines as a zero sum game. Even if they are loss leaders, they can still be beneficial. You may still be right, but you do need to show the bigger picture.
Good job highlighting Xinjiang though, that still needs everyone’s attention.

Steve Weiss
Debt on high speed rail that is close 2 trillion dollars and climbing is a smash up waiting to happen. A grow or die standard can only result in disaster. The same applies to real estate development and other sections of the economy. It’s going to come down with a thud, and it won’t be pretty. This is a mis-allocation of resources on a massive scale.

I find it rather laughable that the author laments that China spent $2T on HSR and deems it all “unprofitable”. The United States spent $2T on the “war against terror” in Afghanistan. I think that had the US not invaded Afghanistan and spent $2T on HSR, albeit even building HSR to “Wyoming” as he puts it, the US would have been 1000 fold better off than all the money wasted in Afghanistan. Oh, by the way, the US is on track to spend another $8T over the next decade on defense but can’t find the guts to spend $2T on infrastructure over the same period. Sorry, the Chinese are on the right track (pardon the pun). In any case, since the PBOC is the issuer of the currency, to whom are these “debts” owed? It is a non-issue. So the government incurred a debt. So what?

Dizzy Dog
I lived in a place where they started building roads in the middle of a vast field, I wasn’t familiar with that area at the time, but was driving though and the whole situation seemed strange. But as time when on, there was massive building of houses and commercial buildings. The roads come first, or in this case, maybe the railroads come first and the populations can grow in new areas. China is famous for long term thinking, it kinda makes sense they are doing this, although it sounds like they didn’t know when to stop. When you look at the era of the transcontinental RR in America, people could have just as easily said “there’s no one living where the train is being built!” lol

Francisco Rivas
It wasn’t economic miracle. It was theft, espionage, slave labor, and other means. You wouldn’t call drug cartels legitimate business corporations. How money is made matters. Love your work.

John Connor
The rails in China are very good, very comfortable and relatively cheap. Easier and quicker than boarding a flight. Too bad there was so much debt needed to fund it.

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