As can be seen from the planning and construction map of China's high-speed rail, there are many high-speed rail lines under construction or ready to start construction in 2022-2023.
Taking the high-speed rail line under construction from Baotou to Nanning as an example, the entire line is basically in the mountainous area, and the section from Xi'an to Guiyang even has other high-speed rail lines that can be reached. It is foreseeable that this line will not be profitable in the 20 years after it is completed and opened to traffic, so why is it still vigorously building these unprofitable high-speed rail projects?
Some people say that it is to maintain the growth rate of investment, because exports and consumption have been extinguished in the second half of this year, and only by increasing investment can China's economic growth be guaranteed. There is some truth to this statement. Due to inflation in Europe and the United States, China's export orders decreased in the second half of the year, and the consumer price index even began to show precursors of vicious deflation. Accelerating investment to keep broad money issuance (M2) growing seems to be the only option.
China's monetary authorities should have thought the same way. After 20 years of frenzied real estate expansion in China, the debt ratio of residents reached about 62% in 2020, and residents have lost the ability to expand borrowing, resulting in China's average urban housing prices turning from rising to stable or even falling. As you can see from the graph of China's debt ratio, only the government can increase the debt ratio.
China's economic growth over the past two decades, in addition to the growth of labor productivity, has been mainly due to the growth of broad money (M2). To put it simply, M2 growth means that there is more money in the whole society, which leads to an increase in asset prices, and almost all social participants feel that there is more money in their hands, so that they will increase consumption and borrowing and investment, so that the money in the society will continue to increase.
However, in 2020, the situation has changed, first of all, the number of China's working population has decreased since that year, and the growth of individual average labor productivity can hardly catch up with the decrease in the working population, and the population negative profit has come. At this time, if the broad money issuance (M2) does not grow, China's economic growth may stop or even become negative.
Collateral is required for currency issuance in China. From 2001 to 2013, M2 growth mainly relied on the sharp increase in foreign exchange reserves caused by a large number of exports after WTO accession, with China's foreign exchange reserves as collateral, and from 2014 to 2021, M2 growth mainly relied on the rise in housing prices, with residents' 30-year income + real estate as collateral. After the average housing price in cities and towns across the country no longer rises in 2021, what else can M2 growth rely on as collateral?
Shares of listed companies + assets of listed companies can be used as collateral, but China's stock market is sluggish and there is no collateral increment. The only thing that can be used as collateral is government credit + specific project assets, and the construction of high-speed rail, which costs a huge amount of money, has become the main magic weapon to maintain the increase in RMB loans in the past two years. After 2021, the state has spent a lot of money on the construction of high-speed rail, and even did not hesitate to repeat the construction to maintain the growth of currency issuance.
However, the construction of high-speed rail has a disadvantage compared with manufacturing exports and real estate, and the construction of high-speed rail cannot benefit a large area of people. China's high-speed rail construction has achieved a high degree of mechanization and industrialization, and the entire industrial chain has limited labor, and the construction of high-speed rail cannot bring income or asset appreciation to most middle-class and low-level workers. Similarly, there are large infrastructure projects such as road construction.
For example, the total investment of the Xiong'an-Shangqiu high-speed railway is 82.71 billion yuan, and the project capital is 41.36 billion yuan. Among them, China Railway Group invested 15.52 billion yuan, Hebei Province invested 11.48 billion yuan, Shandong Province invested 12.42 billion yuan, and Henan Province invested 1.94 billion yuan. About 5/8 of the funds for this high-speed railway are funded by local governments, mainly for demolition and consolidation of land, and only landowners and small range builders along the line benefit; 3/8 of the money is used for high-speed rail construction and the construction of high-speed rail station new cities, and only national railway construction enterprises and high-speed rail materials provide corporate income. Most of these funds come from bank loans, and after flowing into the industrial chain, they will create more than 40 billion yuan of money circulation.
Therefore, after 2021, China's M2 is still growing, and although high-speed rail construction and large infrastructure construction have created many billionaires in the industrial chain, the vast majority of Chinese feel that their income has become less. This is also one of the reasons for the deflation in China in 2023.
If we take a look at China's debt ratio, there is a ceiling on the household debt ratio, but in fact, there is also a ceiling on the government's debt ratio, and Japan has stopped growing for 30 years because it has not been able to raise the government debt ratio.
When the government debt ratio of a large country is also approaching the ceiling, there are only two ways to keep it growing. One path is to carry out territorial expansion and plunder the wealth of other countries like Germany and Japan before World War II, which is not in line with Chinese culture and can be ignored.
Another way is to gradually acquire the status of a global reserve currency with its own currency, as the United States has done, and at the same time send money to the people to spend, so as to transform the investment-based economy into a consumption-based economy. China will not agree to this path, the United States and the Jewish chaebols will not agree, there is a lot of resistance, but there is still a lot of hope for realization. This path requires policymakers and people to work together to strengthen each other's confidence and take action, both of which are indispensable.