Econ_Sep_22

38 China

The Economist

September 22nd 2018

pansion is off the table for now.

One reason why many cities had such

big dreams was because they expected a

white-hot economy and a rapid influx of

migrants from the countryside. Rising de-

mand had seemed more or less assured.

But both economic growth and the pace of

urbanisation are tailing off. Spending on

infrastructure still accounts for a fifth of

China’s annual output, far above the level

ofmost other countries. Liu Shijin, a mem-

ber of the central bank’s monetary policy

committee, said at a conference thismonth

that the economic benefits of this were

waning fast. Instead, he suggested, the gov-

ernment should spend more on health

care andwelfare.

Mr Liu may well be right. China’s stock

of government-invested fixed assets—a

proxy for infrastructure—is already about

the same per person as Germany’s or Brit-

ain’s, according to

IMF

data that use ex-

change rates adjusted for purchasing pow-

er. The stock is much greater than in other

countries at China’s income level. It is well

behind America’s, but it would have

caught up within a decade had China con-

tinued spending on infrastructure at its

previous feverish rate (see chart). Even the

rosiest projections of China’s infrastruc-

ture needs suggest that demand will slack-

en. Julian Evans-Pritchard of Capital Eco-

nomics, a London-based research firm,

says investment growth will slow to low

single digits.

Yet the current slowdown has gone too

far for the government. After a meeting on

September 18th China’s cabinet called for

more “efficient” investment. Having

slammed on the brakes to control debt, the

central government is nowmaking it easier

for fiscally responsible localities to spend

on infrastructure. It has resumed approvals

of some large projects. It has also encour-

aged banks to buy local-government

bonds, including ones earmarked for infra-

structure spending.

As a result, the flow of money into sub-

ways, bridges and the like may increase

slightly, says YaoWei ofSociétéGénérale, a

French bank. But Ms Yao reckons that the

voices for prudence will win out, even if

the trade war with America begins to take

a bigger toll on the economy. Unlike in the

past, China will, she predicts, play it safe

on debt and let growth slide.

One dividend from China’s past infra-

structure-building sprees has been the ex-

pertise it has gained in construction work.

In Nantong a site managed by the China

Railway Group, a state-owned company, is

immaculate. Workers stand in front of a

body-length mirror to check their safety

gear. Cranes laydown a latticeworkofmet-

al poles nearby to reinforce the terrain. A

sign declares that it is a “100-year pro-

ject”—a subway that should long serve the

city. After amad rush to build, China is also

learning to livewithin itsmeans.

High-speed rail

Sidetracked

ESTKOWLOON station is a gigan-

tic newglass-and-concrete complex

inHong Kong’s commercial heart. It was

AndrewBromberg, whose futuristic

creations stud the skylines of several

Chinese cities. This one has the greatest

symbolic importance. It is the terminus

of a high-speed rail linkbetweenHong

Kong and the Chinesemainland—the

territory’s first with theworld’s largest

bullet-train network. For Chinese offi-

cials, extending super-fast lines to every

corner of the country is amatter of na-

tional pride. Imagine their joywhen the

inaugural service leavesWest Kowloon at

7amon September 23rd, after three years

of delays caused by engineering difficul-

ties and a shortage ofworkers.

The government ofHong Kong has

billed the project as an economic game-

changer. More than 600,000 people

commute every day betweenHong Kong

and Shenzhen, a boomtown just over the

borderwith themainland. A trip be-

tween the two city centres currently takes

at least an hour. The new linkwill cut the

journey to14minutes. By ordinary rail,

the journey to Beijing takes 24 hours. On

the newservice, it will take nine. Officials

expect the project, which involved laying

a 26km track to themainland border, to

turn an operating profit ofHK$199m

($25m) in threemonths. That would be

welcome. That link cost nearlyHK$85bn,

a thirdmore than predicted.

But Hong Kongers are deeply divided.

Some believe it will help the territory’s

economy by bringing inmore visitors.

Others charge that the rail link involves

an unacceptable breach of “one country,

two systems”, the arrangement whereby

the central government in Beijing prom-

isedHong Kong “a high degree of autono-

my” for at least 50 years after Britain

handed back the territory in1997.

That is because the newstation con-

tains an areawhere all passengers going

to themainlandwill be pre-screened by

Chinese immigration officials. Fair

enough, it may seem. Similar schemes

operate elsewhere, such as in Britain and

Canada, where officers fromFrance and

America, respectively, performpre-clear-

ance duties so that travellers do not need

to dig out their passports againwhen

they get to the other side. But unlike these

arrangements, where the foreign officials

only have the power to approve or deny

entry, the zone inWest Kowloon station

will legally be regarded as beingwithin

mainland China’s jurisdiction. Mainland

lawswill apply there.

Tanya Chan, a pro-democracy legisla-

tor, says the arrangement contravenes the

Basic Law, Hong Kong’smini-constitution

(a bullet train is pictured piercing it on a

protester’s placard). One of the charter’s

provisions states that “national laws shall

not be applied in the Hong Kong Special

Administrative Region” except in a few

extreme cases typically related to de-

fence. Ms Chan says Chinese officials in

themainland’s zonemight detainHong

Kongers for offences that would not be

considered criminal in their own territo-

ry, such as reading or sending politically

sensitivematerial on their phones. Sever-

al legal challenges to the set-up atWest

Kowloon have been filed inHong Kong’s

courts. Expect them to hit the buffers. On

matters relating to the Basic Law, the

Communist Party-controlled legislature

in Beijing has the final say.

HONG KONG

China’s high-speed rail networkgains a controversial extension

Some are not on board