Tag Archives: China

Chinese jets intercept U.S. military plane over South China Sea

Center for Strategic and International Studies (CSIS) Asia Maritime Transparency Initiative file image of an octagonal tower with a conical feature at its top, located on the northeast side of Subi Reef

By Idrees Ali and Megha Rajagopalan

WASHINGTON/BEIJING (Reuters) – Two Chinese fighter jets carried out an “unsafe” intercept of a U.S. military reconnaissance aircraft over the South China Sea, the Pentagon said on Wednesday, drawing a rebuke from Beijing, which demanded that Washington end surveillance near China.

The incident, likely to increase tension in and around the contested waterway, took place in international airspace on Tuesday as the U.S. maritime patrol aircraft carried out “a routine U.S. patrol,” a Pentagon statement said.

The encounter comes a week after China scrambled fighter jets as a U.S. Navy ship sailed close to a disputed reef in the South China Sea.

Another Chinese intercept took place in 2014 when a Chinese fighter pilot flew acrobatic maneuvers around a U.S. spy plane.

The intercept occurred days before President Barack Obama travels to parts of Asia from May 21-28, including a Group of Seven summit in Japan and his first trip to Vietnam.

China claims most of the South China Sea, through which $5 trillion in ship-borne trade passes every year. The Philippines, Vietnam, Malaysia, Taiwan and Brunei have overlapping claims.

Washington has accused Beijing of militarizing the South China Sea after creating artificial islands, while Beijing, in turn, has criticized increased U.S. naval patrols and exercises in Asia.

The Pentagon statement said the Department of Defense was addressing the issue through military and diplomatic channels.

“ENDANGERING SECURITY”

China’s Foreign Ministry spokesman Hong Lei said the U.S. statement was “not true” and that the aircraft had been engaging in reconnaissance close to China’s island province of Hainan.

“It must be pointed out that U.S. military planes frequently carry out reconnaissance in Chinese coastal waters, seriously endangering Chinese maritime security,” Hong told reporters at a regular press briefing on Thursday.

“We demand that the United States immediately cease this type of close reconnaissance activity to avoid having this sort of incident happening again,” Hong said, adding that the actions of the Chinese aircraft were “completely in keeping with safety and professional standards”.

“They maintained safe behavior and did not engage in any dangerous action,” Hong said.

China’s Defense Ministry said in a fax that it was looking into reports on the incident.

The Pentagon has yet to release the precise location of the encounter.

SIGNAL OF DISPLEASURE?

In 2015, the United States and China announced agreements on a military hotline and rules of behavior to govern air-to-air encounters called the Code for Unplanned Encounters at Sea (CUES).

“This is exactly the type of irresponsible and dangerous intercepts that the air-to-air annex to CUES is supposed to prevent,” said Greg Poling, director of the Asia Maritime Transparency Initiative at Washington’s Center for Strategic and International Studies think-tank.

Poling said either some part of China’s airforce “hadn’t gotten the message”, or it was meant as a signal of displeasure with recent U.S. freedom of navigation actions in the South China Sea.

“If the latter, it would be very disappointing to find China sacrificing the CUES annex for political gamesmanship.”

Zhang Baohui, a security expert at Hong Kong’s Lingnan University, said he believed the encounter highlighted the limitation of CUES, and shows that Chinese pilots would still fly close to U.S. surveillance planes if needed.

“Frankly, we’re always going to see these kinds of incidents as China will always put the priority on national security over something like CUES whenever it feels its interests are directly threatened,” he said.

While the precise location of the encounter is not yet known, regional military attaches and experts say the southern Chinese coast is a military area of increasing sensitivity for Beijing.

Its submarine bases on Hainan are home to an expanding fleet of nuclear-armed submarines and a big target for on-going Western surveillance operations.

The Guangdong coast is also believed to be home to some of China’s most advanced missiles, including the DF-21D anti-ship weapon.

The Pentagon last month called on China to reaffirm it has no plans to deploy military aircraft in the Spratly Islands after China used a military plane to evacuate sick workers from Fiery Cross Reef, where it has built a 3,000 meter (9,800 ft) runway.

In April 2001, an intercept of a U.S. spy plane by a Chinese fighter jet resulted in a collision that killed the Chinese pilot and forced the American plane to make an emergency landing at a base on Hainan.

The 24 U.S. air crew members were held for 11 days until Washington apologized for the incident. That encounter soured U.S.-Chinese relations in the early days of President George W. Bush’s first administration.

Last month, the Pentagon said that Russia had intercepted a U.S. Air Force aircraft over the Baltic Sea in an “unsafe and unprofessional” way.

(Additional reporting by David Brunnstrom in Washington, Greg Torode in Hong Kong, and Michael Martina in Beijing; Editing by Sandra Maler, Lincoln Feast and Mike Collett-White)

China supporting steel exports, U.S. imposes hefty tariffs

Columns of steel are stacked inside the China Steel production factory in Kaohsiung, southern Taiwan

By Ruby Lian and David Lawder

SHANGHAI/WASHINGTON (Reuters) – China said it would persist with controversial tax rebates to steel exporters to support the sector’s painful restructuring, defying a United States move to impose punitive import duties on Chinese steel products.

A worldwide steel glut has become a major trade irritant, with China under fire from global rivals who say it is dumping cheap exports after a slowdown in demand at home.

In a marked escalation of the spat, the United States on Tuesday said it would impose duties of more than 500 percent on Chinese cold-rolled flat steel, widely used for car body panels, appliances and in construction.

However, China’s Ministry of Finance said it would “continue to implement a tax rebate policy on steel exports” as it tries to finance a costly capacity closure plan.

By far the world’s largest steel producer, China plans to eliminate 100-150 million tonnes of annual production – more than the U.S. produces per year – over the next five years. The cabinet said central government-controlled firms will cut steel and coal production capacity by a tenth in 2016-17.

The finance ministry said China was making special funds available to curb overcapacity in both steel and coal and would reward local authorities for exceeding their targets and meeting them early.

The policy document, though dated May 10, was published just hours after the U.S. tariffs were announced. It is the latest policy announced by different departments including the Ministry of Human Resources and Social Security to push forward capacity cuts.

ON G7 MENU

The U.S. Commerce Department said the new duties effectively increase more than five-fold the import prices on Chinese-made cold-rolled flat steel products, which totaled $272.3 million in 2015. It found that products were being sold in the U.S. below cost and with unfair subsidies.

China’s Commerce Ministry expressed its “strong dissatisfaction” with the U.S. ruling, and said the United States should rectify its mistakes as soon as possible.

“The United States adopted many unfair methods during the anti-dumping and anti-subsidy investigation into Chinese products, including the refusal to grant Chinese state-owned firms a differentiated tax rate,” it said.

The Group of Seven rich nations plans to address the steel glut when it meets in Japan later this month, in a move seen likely to add to pressure on China.

Analysts said the potential closing off of the U.S. market would not substantially reduce China’s exports, accounting for just 2 percent of its total shipments.

“The duty will not have a big impact on China’s overall steel exports because the volume to the United States is very small… but because of anti-dumping, export destinations are becoming more and more dispersed,” said Kevin Bai, an analyst with CRU in Beijing.

CHINA DENIES FLOODING MARKETS

While a flood of cheap Chinese steel has been blamed for putting some overseas producers out of business, China denies its mills have been dumping their products on foreign markets, stressing that local steelmakers are more efficient and enjoy far lower costs than their international counterparts.

China has also denied there are any inducements in place that encourage steelmakers to sell their products overseas, saying trade flows are determined by the market.

“Global demand is increasing, and Chinese steel products are very competitive, so exports are increasing a little, but the steel sector is mainly used to satisfy domestic demand and there has never been any policy support for large volumes of exports,” China Iron and Steel Association (CISA) chairman Ma Guoqiang said at a conference this week.

However, a vaguely-worded statement from the central bank and several other government bodies last month said China would encourage exports and provide financing for steel and coal firms looking to move overseas.

While the government has offered as much as 100 billion yuan ($15 billion) to help handle worker layoffs, China’s debt-ridden steel sector cannot afford to abandon the financial lifeline provided by exports.

Foreign sales reached a record 112.4 million tonnes last year, up 19 percent, though total value fell 10.5 percent to $62.8 billion as a result of plunging prices.

More than half of large steel mills still made losses last year, according to the CISA.

Steelmakers have called on more proactive support for the export business, with Chen Ying, the general manager of Jiangsu Shagang, telling a conference on Monday that boosting foreign sales would help speed up the country’s restructuring efforts.

“China should support exports – steel product exports and moving projects and plants abroad,” she said.

(Reporting by Ruby Lian and David Lawder, with additional reporting by David Stanway and Michael Martina; Editing by Lincoln Feast and Ian Geoghegan)

After shoddy China economic data, Xi says to persevere with reform

Xi Jinping

BEIJING (Reuters) – China will push forward supply-side reform and increase the number of middle-income earners, state television quoted President Xi Jinping as saying on Monday, after economic data for April fueled doubts about the economy’s health.

Xi’s speech to a meeting of top government economic regulators underscores the importance, and pressure, of managing China’s economic shift as growth has cooled to 25-year lows.

Investment, factory output and retail sales in the world’s second-largest economy all grew more slowly than expected in April.

The main thrust is to reduce ineffective supply and increase effective supply, Xi said, according to the official Xinhua news agency.

The government has made reducing the capacity glut one of its top priorities, and has vowed to put “zombie” companies out of business. But economists expect authorities to move slowly to avoid a sharp jump in unemployment.

In some regions there had not been forceful action on government policies, Xi was quoted as saying by Xinhua. At the same time, some policies need to be further researched and drawn up.

For the state and society to remain stable over the long-term, the government must realize its goal of meeting people’s needs and expanding the number of middle-income earners, he said.

China must push forward reform of state-owned enterprises, accelerate change in how government functions and deepen the fundamental reforms of pricing, taxation, finance and social insurance, said Xi.

The government must also improve China’s income distribution system and strengthen people’s property protections, he said.

Separately, China’s State Council plans to encourage private investment, a major foundation of a stable economy, in part by removing hidden barriers, Xinhua said on Monday.

To that end, the State Council will send teams to government departments and provincial governments to inspect progress on promoting private investment, said Xinhua.

(Reporting by Beijing Monitoring Desk, Elias Glenn and Paul Carsten, Editing by Ed Osmond)

U.S., China cyber group holds first talks since September pact

Hands on Keyboard

WASHINGTON (Reuters) – A group of senior U.S. and China cyber officials on Wednesday held its first meeting since the two countries struck an anti-hacking agreement in September to try to ease years of acrimony over the issue.

The so-called Senior Experts Group on International Norms and Related Issues is expected to gather twice a year, the U.S. State Department said in a statement announcing the meeting.

It provided scant information about the talks, saying officials from the two nations’ foreign, defense and other ministries discussed “international norms of state behavior and other crucial issues for international security in cyberspace.”

China’s foreign ministry, in a brief statement, said the two sides had a “positive, deep and constructive” discussion about issues including international law as it relates to the Internet and trust measures.

China and the United States will hold another meeting at an appropriate time within the next six months, it added.

China withdrew in 2014 from a separate bilateral cyber working group following the U.S. indictment of five members of its military on charges it hacked six U.S. companies. The new group appears be a fresh start to grapple with cyber issues.

Cyber security has long been an irritant in relations between China and the United States, despite robust economic ties worth nearly $600 billion in two-way trade last year.

The September pact, reached during a U.S. visit by Chinese President Xi Jinping, included a pledge that neither country would knowingly carry out hacking for commercial advantage.

(Reporting by Arshad Mohammed; Additional reporting by Ben Blanchard in Beijing; Editing by Peter Cooney)

China tech workers sleep on the job – with the boss’s blessing

he Wider Image: Working, eating and sleeping at the office

BEIJING (Reuters) – Dai Xiang has slept his way to the top.

The 40-year-old Beijinger got his start as an engineer, pulling 72-hour shifts at a machinery company while catching naps on the floor.

After a switch to the tech industry and around 15 years of catching naps on desks and other flat surfaces, Dai co-founded his own cloud computing firm, BaishanCloud, last year.

One of his first orders of business – installing 12 bunk beds in a secluded corner of the office.

“For technology, it’s more of a brain activity. Workers need time to find inspiration,” Dai said. “Our rest area isn’t just for sleeping at night, the midday is also OK.”

Office workers sleeping on the job has long been a common sight in China, where inefficiency and a surplus of cheap labor can give workers plenty of downtime in many industries.

But China’s technology sector is different. Business is booming faster than many start-up firms can hire new staff, forcing workers to burn the midnight oil to meet deadlines.

“The pace of Chinese internet company growth is extremely fast. I’ve been to the U.S. and the competitive environment there isn’t as intense as in China,” said Cui Meng, general manager and co-founder of start-up data company Goopal.

The company’s programmers, in particular, work overtime every day, he said. To get them through, they are allowed to sleep around lunchtime and after 9 p.m., either facedown at their desk or by commandeering the sofa or a beanbag chair.

LIVING AT THE OFFICE

At its most extreme, some tech company employees even live at the office during the work week.

Liu Zhanyu at DouMiYouPin, a recruitment and human resources platform, bunks down in a converted conference room Monday-to-Friday to avoid the daily commute of more than an hour to his home in Beijing’s far eastern suburbs.

The head of the “large clients” department usually retires to the room shared with one or two others between midnight and 3 a.m.

“We have to get up at 8:30 a.m. because all our co-workers come to work at 9:30 and we wash in the same bathroom everyone uses,” said Liu.

While workers across companies said the potential pay-off of working at a start-up was worth the long hours, they aren’t without a social cost.

“My kid misses me, I get home and he lunges at me like a small wolf,” Liu said, speaking about his three-year-old son who he only sees on weekends. “That makes me feel a bit guilty.”

Programmer Xiang Shiyang, 28, works until 3 or 4 a.m. at least twice a week at Renren Credit Management, which uses big data to help firms manage financial risk, leaving little room to socialize outside of work.

“I don’t have that many opportunities or much time to find a girlfriend,” he said.

The company provides cots for workers like Xiang to sleep on during late nights.

“Actually working overtime is a very casual thing,” he said. “Because I’ve invested the whole of my being into this company.”

(Writing by Jake Spring; Editing by Alex Richardson)

Quietly, Vietnam hosts arms gathering attended by U.S. companies

Soldiers hold rifles while marching during a celebration to mark Reunification Day in Ho Chi Minh city, Vietnam

By My Pham and Idrees Ali

HANOI/WASHINGTON (Reuters) – Vietnam hosts a defense symposium this week attended by top American arms manufacturers, ahead of a visit by U.S. President Barack Obama and as Washington weighs whether to lift an arms embargo on its former enemy.

Secrecy has surrounded the event staged by the communist country and attended by firms including Boeing <BA.N> and Lockheed Martin <LMT.N>. It coincides with the biggest arms buildup in the country since the Vietnam War.

There has been no mention in state-controlled media and defense reporters are not covering the forum. Efforts by Reuters to gain permission to attend have been unsuccessful and Vietnam’s defense ministry could not be reached for comment.

Vietnam has accelerated efforts to build a military deterrent and is the world’s eighth largest weapons importer, as neighbor China intensifies its push to fortify South China Sea islands it has either occupied or built from scratch.

According to the Stockholm International Peace Research Institute think-tank, which tracks defense trade over five-year periods, Vietnam’s total arms imports during 2011-2015 represented a 699 percent jump from 2006-2010.

The Hanoi symposium comes amid debate within the U.S. administration over whether to respond to Vietnam’s longstanding request to remove an arms embargo that is one of the last major vestiges of the Vietnam War era.

Washington eased the embargo in late 2014, but has said any decision to lift it completely would hinge on the extent to which Vietnam has demonstrated progress in improving its human rights record. Its top envoy in that field, Tom Malinowski, was in Hanoi earlier this week.

Vietnam has been in talks with Western and U.S. arms manufacturers for several years now to boost its fleets of fighter jets, helicopters and maritime patrol aircraft, although Russia, its traditional supplier, maintains a dominant position.

Industry sources say Hanoi is keen on U.S. weapons yet wary of the threat of a future embargo even if the current one ends. The countries do have a common concern in China, however, whose assertiveness in the South China Sea has alarmed Washington.

Obama is due to start his Vietnam visit on May 22, the first by a U.S. president in a decade, underlining the rapidly warming relationship between the countries at a time of testy ties and growing mistrust between Hanoi and Beijing, which have competing claims to the Paracel and Spratly islands.

MODERNIZATION NEEDS

A spokesman for Lockheed Martin confirmed the company was attending the Hanoi event.

Boeing is also attending, although the firm made it clear it was not in contravention of the embargo.

“I would like to point out that any defense-related sales to Vietnam will follow development of U.S. government policy on Vietnam,” a spokesman said.

“We believe Boeing has capabilities in mobility and intelligence surveillance and reconnaissance platforms that may meet Vietnam’s modernization needs.”

Those needs have included the purchase of six modern Kilo-class submarines from Russia equipped with Klub cruise missiles, Russian-built S-300 surface-to-air missile batteries, and from Israel, Galil assault rifles and AD-STAR 2888 radars.

Its navy is making Tarantul-class corvettes, known as Molniyas, modeled on Russian designs and equipped with 16 missiles with a range of 130 km (80 miles).

Though the communist parties that run China and Vietnam officially have brotherly ties, experts say Beijing’s brinkmanship has forced Vietnam to recalibrate its defense strategy.

A report in the defense ministry’s People’s Army Newspaper Online in March quoted the vice defense minister, Lieutenant General Nguyen Chi Vinh, as saying Vietnam’s relationship with the United States lacked defense industry cooperation, and Hanoi wanted Washington “to provide modern, suitable and adaptable technology”.

Its outreach so far has been weighted towards Russia, India and Israel in procurements, but analysts say it is unlikely to seek formal military alliances and would stick to its foreign policy of not relying on a single power.

It has, however, mulled joint exercises with another South China Sea claimant at odds with China, the Philippines, and has received recent visits by Singaporean and Japanese warships at its new international port at Cam Ranh Bay, a strategic deepwater base that is home to its submarines.

Tim Huxley, a regional security expert at the International Institute for Strategic Studies in Singapore, said Vietnam’s interest in getting the arms embargo lifted was not only about access to U.S. technology, but boosting its bargaining power.

“It reflects concern about what’s happening in the South China Sea and its need to restructure and re-arm, with a greater emphasis on greater naval and air capability,” he said.

“It wants to widen options available and have more choices in the international market place in terms of range of technology and its negotiating position.”

(Additional reporting by Mai Nguyen in HANOI; Writing and additional reporting by Martin Petty in MANILA; Editing by Mike Collett-White)

China to relocate 2 million people this year in struggle to banish poverty

A homeless woman is seen on a cold winter night near Beijing South Railway Station in Beijing

BEIJING (Reuters) – China, fighting to stamp out poverty, will this year move more than two million of its poorest citizens from remote, inland regions to more developed areas, an official of the cabinet, or State Council, said on Tuesday.

The mass relocation of people is a strategy targeted at lifting 10 million citizens out of poverty by 2020, state news agency Xinhua has said.

Some of the villagers will move to areas with better social services, such as schools and hospitals, while others in remote areas will move to places with better roads and water supply, the official, Liu Yongfu, told a briefing.

The numbers would be stepped up gradually and may eventually hit 3 million, added Liu, who heads the cabinet’s Leading Group Office of Poverty Alleviation and Development.

“We will talk it over with the localities and accumulate some experience, after that we will increase step-by-step,” he said.

Despite two decades of rapid economic growth, poverty remains a huge issue in China, mainly in rural areas, where a lack of jobs drives out adults, leaving behind children and the elderly, often with limited access to schools and healthcare.

China’s poor, who make up about 5 percent of a population of nearly 1.4 billion, live mostly in the countryside, and earn less than 2,300 yuan ($362) a year, government and state media say.

In March Premier Li Keqiang promised a boost of 43 percent in funding for poverty relief programs. Last October, the cabinet said China aimed to lift all its 70 million poor above the poverty line by 2020.

In December, Li urged local authorities to provide housing, healthcare, schooling and employment for relocated citizens.

Since kicking off market reforms in 1978, China has lifted more than 800 million people out of poverty, but it remains a developing country and the reforms are incomplete, the World Bank says.

(Reporting by Megha Rajagopalan; Editing by Clarence Fernandez)

China scrambles fighters as U.S. sails warship near Chinese claimed reef

Still image from a United States Navy video purportedly shows Chinese dredging vessels in the waters around Fiery Cross Reef in the disputed Spratly

By Michael Martina, Greg Torode and Ben Blanchard

BEIJING/HONG KONG (Reuters) – China scrambled fighter jets on Tuesday as a U.S. navy ship sailed close to a disputed reef in the South China Sea, a patrol China denounced as an illegal threat to peace which only went to show its defense installations in the area were necessary.

Guided missile destroyer the USS William P. Lawrence traveled within 12 nautical miles of Chinese-occupied Fiery Cross Reef, U.S. Defense Department spokesman, Bill Urban said.

The so-called freedom of navigation operation was undertaken to “challenge excessive maritime claims” by China, Taiwan, and Vietnam which were seeking to restrict navigation rights in the South China Sea, Urban said.

“These excessive maritime claims are inconsistent with international law as reflected in the Law of the Sea Convention in that they purport to restrict the navigation rights that the United States and all states are entitled to exercise,” Urban said in an emailed statement.

China and the United States have traded accusations of militarizing the South China Sea as China undertakes large-scale land reclamations and construction on disputed features while the United States has increased its patrols and exercises.

Facilities on Fiery Cross Reef include a 3,000-metre (10,000-foot) runway which the United States worries China will use it to press its extensive territorial claims at the expense of weaker rivals.

China’s Defence Ministry said two fighter jets were scrambled and three warships shadowed the U.S. ship, telling it to leave.

The U.S. patrol “again proves that China’s construction of defensive facilities on the relevant reefs in the Nansha Islands is completely reasonable and totally necessary”, it said, using China’s name for the Spratly Islands where much of its reclamation work is taking place.

Foreign Ministry spokesman Lu Kang said the U.S. ship illegally entered Chinese waters.

“This action by the U.S. side threatened China’s sovereignty and security interests, endangered the staff and facilities on the reef, and damaged regional peace and stability,” he told a daily news briefing.

SENSITIVE AREA

China claims most of the South China Sea, through which $5 trillion in ship-borne trade passes every year. The Philippines, Vietnam, Malaysia, Taiwan and Brunei have overlapping claims.

The Pentagon last month called on China to reaffirm it has no plans to deploy military aircraft in the Spratly Islands after China used a military plane to evacuate sick workers from Fiery Cross.

“Fiery Cross is sensitive because it is presumed to be the future hub of Chinese military operations in the South China Sea, given its already extensive infrastructure, including its large and deep port and 3000-metre runway,” said Ian Storey, a South China Sea expert at Singapore’s ISEAS Yusof Ishak Institute.

“The timing is interesting, too. It is a show of U.S. determination ahead of President Obama’s trip to Vietnam later this month.”

Speaking in Vietnam, Daniel Russel, assistant secretary of state for East Asia and the Pacific, said freedom of navigation operations were important for smaller nations.

“If the world’s most powerful navy cannot sail where international law permits, then what happens to the ships of navy of smaller countries?,” Russel told reporters before news of the operation was made public.

China has reacted with anger to previous U.S. freedom of navigation operations, including the overflight of fighter planes near the disputed Scarborough Shoal last month, and when long-range U.S. bombers flew near Chinese facilities under construction on Cuarteron Reef in the Spratlys last November.

U.S. naval officials believe China has plans to start reclamation and construction activities on Scarborough Shoal, which sits further north of the Spratlys within the Philippines claimed 200 nautical mile (370 km) exclusive economic zone.

A tough-talking city mayor, Rodrigo Duterte, looks set to become president of the Philippines after an election on Monday. He has proposed multilateral talks on the South China Sea.

A Chinese diplomat warned last week that criticism of China over the South China Sea would rebound like a coiled spring.

(Additional reporting by David Brunnstrom in Paris and My Pham in Hanoi; Writing by Ben Blanchard; Editing by Lincoln Feast, Robert Birsel)

China landslide death toll climbs to 34

Paramilitary policemen search for missing people at the site of a landslide in Sanming

BEIJING (Reuters) – The death toll in a landslide in China’s southeastern Fujian province has risen to 34, with four people still missing, state media said on Monday.

The landslide, triggered on Sunday by heavy rain, hit a hydroelectric power station that was under construction in Fujian’s Taining County. President Xi Jinping had demanded that local officials step up rescue efforts.

Persistent rain has made rescue work more difficult, Xinhua said. It earlier said 22 bodies had been found.

In December, a landslide in the southern city of Shenzhen buried 77 people. The government has blamed breaches of construction safety rules for that disaster and a number of officials have been arrested.

Sunday’s landslide is the latest accident to have raised questions about China’s industrial safety standards and lack of oversight over years of rapid economic growth.

(Reporting by Michael Martina; Editing by Alison Williams)

U.S. Bullet train proposals shun public funds, favor private cash

China Railway High-speed Harmony bullet trains are seen at a high-speed train maintenance base in Wuhan

By Robin Respaut

(Reuters) – It took years of lawsuits and political battles for California to finally break ground last year on the nation’s first bullet train, which aims to connect San Francisco to Los Angeles by 2029.

High-speed rail advocates had hoped the line, supported by more than $13 billion in state and federal money, would inspire similar government-financed projects. Instead, its many delays have left rail groups wary of accepting public funds for projects they are proposing in three other states.

Companies in Texas, Minnesota and Nevada all plan to tap private cash from investors globally, with help from foreign train makers and governments eager to export train technology. The projects would rely on partnerships with Japanese or Chinese firms that face saturated train markets at home.

“The United States is the Holy Grail of deployment for Japan, China, France, Germany and Spain,” said Tim Keith, Texas Central CEO.

California’s example shows that taking taxpayer money opens the door to political and legal challenges that can drag out planning, bidding and approvals for years, private rail advocates said. Companies now see a quicker – even cheaper – path by largely avoiding such headaches.

“All the rules relating to public engagement start the day you take public funding,” said Wendy Meadley, chief strategy officer for North American High Speed Rail Group’s project in Minnesota. With private financing, she said, opponents “can’t make thousands of public records requests and run the project over.”

The company said last year it would seek money from Chinese investors. Now, it said it is considering two foreign partners for the $4.2 billion project, which seeks to connect the twin cities of Minneapolis and St. Paul to the internationally renowned Mayo Clinic in Rochester, Minnesota, by 2022.

Texas Central is paying for engineering studies with $75 million from Texas investors, $40 million from a state-backed Japanese development fund and about $130 million in design work from two firms. The Dallas-to-Houston rail line is projected to cost $12 billion and be completed by 2021.

In Nevada, privately financed XpressWest plans to link Las Vegas to Southern California. Started by Las Vegas developer Marnell Companies, the company formed a joint venture last fall with a consortium of Chinese firms, infusing $100 million into the project expected to break ground as soon as this year.

XpressWest officials declined to comment.

GOVERNMENT JUMPSTART

Some experts remain skeptical that bullet trains can work without government money to finance initial legs of construction.

Rail lines are generally profitable once in operation, said Jim Steer, director of UK-based high-speed rail research organization Greengauge 21. But operating profits are unlikely to be enough to repay massive construction costs.

“No private party is actually going to stump up the kind of money needed to create these things,” said Steer.

Supporters of the new rail lines said investors can expect solid returns based on ticket sales and profits from high-end real estate developments near stations.

Current economic trends also make private financing for infrastructure projects easier to secure. Interest rates at historic lows have created global demand for stable, long-term investments, igniting interest in infrastructure projects from banks and major investors, such as pension funds.

The number of institutional investors in infrastructure, such as roads, airports and rail, more than doubled since 2011, according to Preqin, an alternative investments research firm.

“There’s a lot of money swimming around the world that doesn’t know where to go,” said Dr. Alexander Metcalf, president of TEMS, Inc., a transportation consulting firm. “We’ve seen huge increases in institutional money that is willing to go into transportation.”

Longstanding U.S. skepticism of expensive train projects does not necessarily extend to foreign investors, Meadley said.

“People outside of this country believe this will happen more than Americans believe this will happen,” she said.

POLITICAL PERILS

The U.S. is decades behind Europe and Asia in building fast trains.

In the early 1990s, French and German companies made plays to construct a high-speed network across Texas. But the project relied in part on taxpayer money, and the proposal collapsed when local political support waned.

Texas train officials now see private financing as the faster, cheaper – and only – avenue. If their project relied on public subsidies, “we’d end up pulling the plug,” said Robert Eckels, a director at Texas Central.

Project officials say they have avoided U.S. federal funding in part because it includes a requirement that American workers manufacture the trains – even though no such U.S. factory currently exists.

Since 2009, the government has spent $10 billion to improve passenger rail service in the U.S. California was the only recipient constructing a high-speed rail line, and the money will only go so far. The state will likely need private money to finance much of the project’s estimated $64 million cost.

State rail officials overseeing the California project, considered the most ambitious planned in the U.S. and the farthest along, say there’s growing interest from foreign governments and international firms to finance the second leg to Los Angeles.

In February, the state announced the opening of the train’s first leg, a 250-mile line from the rural Central Valley to Silicon Valley, would be pushed back by three years to 2025.

The progress has been measured in decades rather than years. California Governor Jerry Brown first signed legislation to study high-speed rail during a previous tenure in office – in 1982.

“Everything big runs into opposition,” Brown said at the rail line’s groundbreaking in January 2015.

(Additional reporting by Brenda Goh in Shanghai and Tim Kelly in Tokyo; Editing by Brian Thevenot)