– They can finance stuff like this on credit unchecked by ny public opposition to growing national debt
– Having started later than western countries, their public debt (41% GDP) is much lower
– High GDP growth rates further lower the effective burden of their debt
– They can act largely unencumbered by the historic debt of colonialism, while western countries face opposition both internally as well as locally in the project countries
– They have less qualms of working with some regimes with less-than-stellar records on human rights
– Lower regard for human rights means lower risk of political tensions between China and the host countries, which could otherwise endanger investments. Western countries, conversely, want to avoid a situation where they have to compromise on morals to protect their investments (c.f. China)
– China has a lot more experience with large infrastructure projects than any other country.
– China brings their own workers to these projects, which are paid far below any construction workers you could find anywhere in industrial countries
– The politics of China allow for "Grand Plans" and their quick approval. Democratic processes would almost certainly stop any such project in a western country because it's impossible to write a reliable business plan for them. These are bets made on a whim and to a certain degree driven by politics and emotions.
– Western democratic countries generally regard such projects to be the provenance of the market.
> They have less qualms of working with some regimes with less-than-stellar records on human rights
Citation needed.
US corporations not only readily work with dodgy regimes, they also work with drug cartels. China has horrible human rights records, but US corporations readily deal with the Chinese govt when there is money or market-share to be gained.
Since when do US corporations represent the people of the United States and their government? The US has done, and continues to do, some evil shit but there is clearly a much more effective feedback loop between American politicians and their constituents than between the Politburo and the Chinese population. That feedback loop includes peoples' beliefs in the principles of the United States and the Constitution, even though a tiny minority (corporate executives) clearly do not.
Sorry, I'm conflating the Chinese government with the corporations that do the actual work on the ground and generate the revenue. The US does get involved a lot in foreign affairs on behalf of American companies (i.e. reporting on Airbus's attempted bribery of Saudi officials in order to benefit Boeing) but if my experience in Russia is indicative of how it works in China, the government and corporations are far more intertwined. In Russia, to get stuff done like get building permits or guarantee reliable logistics, you quite often have to resort to bribes and anything at the scale of large corporations requires complex relationships between the business owners and politicians/bureaucrats because the latter can easily use "legal" means to take control of the company and reprivatize it to their cronies. These are broad strokes but there are plenty of publicly known examples like Sergei Magnitsky, who died in a prison cell after discovering that high level officers took control of a foreign investment firm and claimed hundreds of millions of dollars in tax returns from the government.
Based on my understanding of this expansion into Africa, the Chinese government is heavily involved in negotiating mineral rights and uses its might to enforce the security of investments that are made by corporations, which are effectively state owned or at the very least can become so on the whims of the Politburo.
Environment? It's a desert, you can hardly break it worse than it already is. Also, it's Africa. Concern for the environment is a luxury for rich countries where the people already have a good quality of life and can put more effort into secondary effects like pollution/etc. Ultimately, humans are more important than the environment so where you can give a big boost to the former at a moderate cost to the latter, it can be a worthwhile trade-off.
"Concern for the environment is a luxury for rich countries" because they have methods in place to deal with pollution. In agricultural societies it's not a luxury, but a necessity. Polluting the ground and water has very direct negative health impact, because people can't filter the water or use measures against ground pollution.
The African continent has deserts as well as millions of acres fertile land.
As with all ecosystems, deserts change over time. The fossil record shows, for example, that the Sahara desert once sustained aquatic animals and lush vegetation not present today.
It is environmentally prudent to avoid polluting all ecosystems whatever their appearance. Doing so ensures the longevity and continuation of all life on this planet, including that of humans.
Agree completely. My point was value-free. It simply makes a staggering difference in how much can get done in how short a time. By the way, the desert is an incredibly rich, complex ecosystem, no matter how bare it looks on the surface
My strong opinion on this. Their secret is trade, China manufactures, they build, they create, they need more raw material than ever and Africa has that. That's why they are in Africa, they are making these deals so they can get their raw materials. That's one.
Second, China was "poor" not too long, it's fresh in their mind, they know how a poor place can just transform, and they see that possibility in Africa. Plenty of those that didn't make it in China figure they can in Africa by leveraging their connection to China. So it's not just rich Chinese in Africa, there are just average Chinese folks who move to Africa and do trade import/export and build small businesses too. They see the possibility and potential. Americans don't see that in Africa, most people alive in America today didn't witness when the majority of America was "materialistic poor" like Africa is today. Which was about 100+yrs ago.
Or the history of California, for that matter. By the time Native American tribes in California made contact with the invaders, the United States was decades away from becoming an independent country. By the time America and Mexico went to war, 90% of them had already died due to diseases spread by Russian fur traders and Spanish missionaries.
I read another comment on HN about this recently. Their explanation was that it's due (at least in part) to the high savings rate of the Chinese compared to the USA (and other countries, I guess)[1]. The idea is that when people are stashing their money into bank accounts, the banks have a lot more money to work with.
For example, Americans will use their money to buy cars. The Chinese would save their money, and the banks can use that money to fund transit projects.
I don't know how true this is, but it makes sense in my brain. I'd love to do more reading about this as well. If it's true, that makes it mildly frustrating to me, since I save a lot of my income and refuse to own a car; I don't get any extra public transit out of that, though!
If you are interested in this, I highly recommend 'The Great Rebalancing' by Michael Pettit. He explains the causes and implications of China's high savings rate, and the relationship with other countries' savings rates. His explanation of the causality is contrary to most of what you will have read in the popular press.
I don't believe it's a lack of money. There's no shortage of investors looking to make money in the U.S, and we have very low interest rates. If people aren't investing, it's because they don't think they can make a profit.
So I believe the real question is, why is it thought to be a money-loser?
And somehow, Chinese investors seem not to care that much about profits? It's unclear how much of these is foolishness versus vision versus corruption.
In any case, lots of great infrastructure gets built by companies that go bankrupt. From the point of view of someone who didn't finance it, maybe it doesn't matter whether it's a smart move or not.
The US has laws against bribing foreign governments or officials. You can be punished in America for it, adding an extra layer of risk on top.
Considering this sort of corruption is required to do business in these places, it effectively bars Americans from competing.
The idea behind it is if we don't incentivize corruption, it will go away. Needless to say, it didn't work, as it takes only one person to spoil it. It's a prisoner's dilemma game where only some players get punished
Because China is an export-oriented country. Now we can go into who provided credit for whom to build this railway track, I would assume (I can be wrong) it all involved a dizzying array of Chinese creditors and companies, from the steel, construction to the trains themselves.
They are not building out of charity but the benefit their own companies. Lot of LatAm countries like Ecuador have taken Chinese credit when Commodity markets are hot, are now regretting their mistake.
[edit]: From Wikipedia --
The new line was built between 2011 and 2016 by the China Railway Group and the China Civil Engineering Construction Corporation. Financing for the new line was provided by the Exim Bank of China, the China Development Bank, and the Industrial and Commercial Bank of China.[5] A total of US$4 billion was invested into the railway.[6]
Sure. Two things were true then, are true now and will be true ten years later (when India is making the loans?): First, the loans are not charity. Second, Argentina will end up defaulting on them.
The impact of a railroad (and therefore ROI whether measured financially or just socially) is bound to be higher for Ethiopia, esp since it is the first and only to connect the landlocked country to a major sea port.
I mean, you are not wrong. But I don't see how that's a reply to my post. Also, to make it clear, I am (roughly) from the region, and the joke about Argentinian defaults was meant to be gently poking fun at their history with it, since LatAm and loans came up.
For a country with such low GDP the debt to GDP ratio is not a good indicator of its future. If the country's economy performs at all its GDP could go up multiple times. The situation is different for a middle income country such as Argentina. One can't reasonably expect Argentinian GDP to go up multiple times so the debt is a lot more onerous relative to the GDP. There is a well know "middle income trap" that is hard to escape. The economic upgrade required to move to the developed status from the middle income rung is much harder than what is required to move up from a very low base (really just "normalize") such as Ethiopia.
>"I'm just amazed at how China is moving forward where other countries (looking at you, USA) simply cannot."
Can you explain this comment? China is not building rail networks in Africa for altruistic purposes, their primary interest in Africa's natural resources. How does that relate to the US in any way?
>"Also: environment is happier."
Have you been to a Chinese city recently? Beijing or Shanghai? They are choked with cars despite having good rail infrastructure. In fact China is the largest producer of cars the planet right now. There are times when your lungs hurt at the end of the day. People wearing air pollution masks is normal.
Also you are comparing a centrally planned economy full of SOEs(state owned enterprises) controlled by the Communist Party with a free market economy, they are nothing alike.
>"What's their secret"
There is no secret, the economy is centrally controlled by a single political party that can not be voted out of power.
Nothing secret. China as a country generates lots of savings and the money that is parked with government(banks) needs to be deployed to generate returns. So it will get invested all over the world.
Wanting to grow their geopolitical influence by winning hearts and minds. Wouldn't be surprised if China wasn't making this move for more influence in / around the Bab al-Mandab Strait - the narrow opening of the Red Sea into the Arabian Sea. It's formed by Yemen to the East and Djibouti to the west.
This sea route is the fastest way from Europe to Asia. Tons of oil from the Middle East flows through here.
China has a current account surplus (they export more goods than they import). To keep their exchange rate down, they export the capital back out, funding things like rail in Africa. It's not the free market. Much of the surplus savings/capital in China is inside state controlled banks and conglomerates. Average Chinese citizens have a hard time taking capital outside the country, which is a driving force behind their overpriced real estate and the popularity of bitcoin there.
A coal fired plant combined with an electric train and transmission losses is more efficient both energy and emissions-wise than the equivalent ICE engines to transport the same people.
Hard to say exactly, but it's not crazy. But I doubt the difference is that large.
Diesel engines for locomotives are likely 40% efficient before accounting for the motor-generator section. A modern a coal fired power plant might be 40-45% efficient. So probably the same based on raw thermal numbers.
I suspect economically the electrification is a win.
Also over the future it's possible to run the electrified trains on electric power from greener sources, like solar and wind. Where diesel would require a big upgrade.
The Tesla fans can probably give you the details -- although they're still a little wedded to cars. A coal plant can use filtering much more elaborate than anything a private vehicle can use, so reportedly a Prius (35 MPG) has about the same emissions as a Tesla fueled from an all-coal grid.
I don't disagree with your general point (although I'll quibble a bit about non-carbon emissions; even heavily scrubbed coal emits a lot of heavy metals that aren't present in gasoline).
But what Prius only gets 35 MPG? Did you mean 53MPG? My old Prius with batteries that are getting long in the tooth still gets 40-45 MPG.
What's the bar for ecological spending? They should use more expensive energy solutions than say America? Why? I'd criticize each American coal plant in turn, before turning to blame 3rd-world development.
I don't know exactly where the bar is, but I would propose that it lies somewhere above the point where going outside makes your eyes and nose burn because the air is so awful.
The US is not some magical pollution-free paradise, but at least the air is comfortably breathable here 365 days a year in most places.
It's amusing when the authorities put out an air quality alert here in the DC area. It's important for sensitive populations, but it's almost impossible for a normal person to even notice the difference. A code red air quality day in DC would be a delightfully clear and clean day in Beijing.
They should use cleaner energy solutions because they're killing a shitload of people right now. Dirty coal is only cheaper if you ignore the costs imposed by the pollution.
And that's the situation in Ethiopia? I'm not sure it is. So again, they're using a cost-sensitive solution with possibly little ecological impact, in comparison to the rest of the world anyway.
The plants aren't built yet, so you wouldn't expect to see their impact yet. If you want to see what it might look like, look at another place where similar things are already built.
Inside the US that's true but outside of the US, America has a terrible human rights record. They've supported and armed many of the worst dictators as well as directly attacking many countries too.
US under Trump is still a better place in terms of Human Rights and Quality of Life than life in an Average city in China under the Xi.
Of the two there is no debate who is an Autocrat. Xi's opponents went to Jail and the purges are still continuing. How many of Trumps opponents went to Jail? Lets be level headed in conversations here, rather than hyperbole.
But hey, you are welcome to go to China and behind the firewall, if you think its all rocking there!
I'm busy stopping friends from promoting conspiracy theories and Hitler comparisons left and far-left. Yet the fear voiced in the comment you're replying to doesn't seem to be completely unwarranted.
One of the key principles of "democratic procedures" is that the courts have final say over all executive activities. It is obvious that this principle is centre to some of the recent tweets saying (paraphrasing from memory) "what has our country come to when a court can <stop me from doing something>". Note how the country hasn't changed a bit and there's a long history of the courts stopping various measures enacted in the name of security. To use an example from the other end of the spectrum: imagine "@prezObama: What is our country coming to when a judge can halt a National Security handgun ban and anyone, even with bad intentions, can walk around with a deadly weapon?".
Note that this isn't about the actual policy. It also isn't about complaining about a judge's decision. It's about the assumption in the statement that courts shouldn't have jurisdiction over such matters.
> One of the key principles of "democratic procedures" is that the courts have final say over all executive activities.
Then surely you support the Republican party? One of their first orders of business after the election was to move to gut Chevron deference[0], a concession by the judicial system towards the executive(essentially, courts would defer the interpretation of a law to the government agencies tasked with enforcing it)[1].
It's not unreasonable for the president to push back when he thinks the courts are overstepping their bounds. That, I would argue, is part of his job. In this particular case it's pretty clear the president was well within the law, and he would be remiss if he didn't say anything.
I wonder if the people who are now wailing and rending their garments were equally horrified when Obama scolded the Supreme Court in a State of the Union speech.
Does this open up any investment or business opportunities?
I feel like the shipping and railroad industry is enormous and impenetrable, but there must be some smaller opportunities in here. Even if it's something sort of intangible, like "increasing transparency and fighting corruption". Because you know some percentage of this money went into the wrong pockets.
If you were just a programmer from a western country, how would you even begin to get started in developing markets? Not just this railway project, but Africa and Asia in general. I'm reading things like this [1]:
> China, India and the rest of the developing world will eclipse the west in a dramatic shift in the balance of economic power over the next 50 years.
So I want to be where the growth is happening. How do I do that? Do I need millions of dollars before I can achieve anything? Should I learn Mandarin, Hindi, or Swahili? In the past, I would have had to visit some of these countries and talk to some local entrepreneurs. Now I can just do my own research, meet people online, and have Skype calls. There's really no need to travel in order to find opportunities.
EDIT: I just watched the "Empire of Dust" documentary... That's really eye-opening. I hate to think about how much all of those workers are being paid. Even the Chinese managers. I guess business is business, and they just pay as little as possible. It also seems like it is very difficult to get anything done.
This opens up a lot of investment/business opportunities.
Ethiopia is land-locked and given its not-so-great relationship with Eritrea, uses Djibouti as its primary port. The time-savings of the railway will bring down port-to-Addis shipment times to 12 hours which is awesome considering it can take 3 days now (although the customs process will need to be improved to really speed it up)
It will also reduce the costs necessary to repair the roadways that trucks take to get to Djibouti and back. The incoming lane on these roads is often rutted like crazy due to the weight of the goods and truck drivers are not always the most reliable people.
Ethiopia is also home to one of the fastest growing economies in the world and it is extremely import-dependent. The lower the costs for transit, the lower the costs for the consumer.
RE: wanting to be where the growth is, you really need to be here to see it (I spend most of my time in Ethiopia) You don't have to know the local language and you don't need millions of dollars but you need to have an appetite for risk and be an extremely patient person. Nothing generally works out the way you think it will here so be open to other outcomes and be resilient through it all.
> So I want to be where the growth is happening. How do I do that? Do I need millions of dollars before I can achieve anything? Should I learn Mandarin, Hindi, or Swahili? In the past, I would have had to visit some of these countries and talk to some local entrepreneurs. Now I can just do my own research, meet people online, and have Skype calls. There's really no need to travel in order to find opportunities.
I don't know anything about Africa or China, but I just spent 1 month backpacking through India doing exactly this: meeting local entrepreneurs (tech industry, non tech, small business, street vendors, etc) and meeting people and families from the north to the south. To really get an appreciation for a market, how the consumers in that market think, and the obvious problems and opportunities around you, you HAVE to go there and see it for yourself. I spent the previous 2-3 years keeping an eye on Indian development from the West, but the 4 weeks I was there eclipsed any prior learning I did. Go visit.
English is absolutely required, but you are already there.
Otherwise, Mandarin isn't that useful actually, as most Chinese you work with will speak better English than your Chinese could ever be, and anyways, finding a bilingual Chinese is not that hard. I'm not sure, from a business perspective, if learning it is productive; but it makes sense from an enrichment perspective.
Considering many Indians don't speak Hindi natively or at all, I would strongly recommend one of the other options. Most higher-level business in India is conducted (or can easily be conducted) in English, and many upper-class or entrepreneurial Indians are more comfortable with English than Hindi.
GDP is per year while debt is spread over time, like 30 years. Assuming 5%/yr for the amount of interest and principle repayment, 5% x 60% = 3% of GDP for debt service per year. Not too bad. Assuming the project adds 1% to GDP growth, it would boost the GDP by 35% at the end. Adding 2% would boost by 81%. And the effect will continue after the debt has been paid off. That's a good investment.
I don't think you're accounting for interest in that calculation. If they have borrowed 60% of GDP at an interest rate of 3%, it would take a 1.8% annual increase in GDP just to match the interest on the loan.
That is also ignoring the fact that you can't just take the entire GDP growth and use it to pay the loan, you have to collect fares and taxes which can only be a proportion of that growth. If you collect more in fares than the increase in GDP, you're leaving the country poorer than they would be without the railway.
Djibouti is going to need to see some pretty big additional growth from the railway to make the project worthwhile. Not to say they won't, be it's easy to underestimate just how big of a debt burden it is for a small country.
The sample 5%/year loan payment already includes the interest and principle repayment, where the interest rate incidentally is about 3%. Annual debt service is 5% x 60% of GDP = 3% of GDP. As the GDP grows, the portion of the debt service each year becomes less and less, 2.9%, 2.8%, ...
The train system presumably generates revenue, where the operating income can be used to pay off the debt, rather than paid by tax on the GDP. A train system has transformative benefits to a nation. The benefits are still there long after the debt is gone. The ROI period is way longer than 30 years.
This is an unstable area - to say the least. What happens if/when there is an extended disruption? Perhaps the Chinese government will feel justified to send in troops?
What if (as seems likely) the monotonic growth doesn't materialize? What if there's a recession for a few years and there is a decline?
Those sound like reasonable concerns. Thanks for sharing.
I don't much about the geopolitics or stability of these two countries, but assuming they aren't too unstable, it's hard to imagine that increasing mobility and ease of commerce won't have a sizeable economic boost.
Let's say you make a $100k per year and take out a $60k mortgage, that seems very reasonable. If the railway is going to make their economy more productive and efficient then it seems like a really good idea.
It depends a little bit on how much of their economy they can afford to spend on transit projects though. Home buyers can usually devote a significant portion of their annual income towards housing.
People buy cars that are worth more than their yearly salary and it's a common thing. Spend 100% of your yearly effort on a thing that will be worth 25% less in twelve months. Plus it costs probably about $5,000 per year to own and operate a vehicle.
Is that really a common thing? Cars depreciate rapidly and buying one that costs more than your early salary sounds like a complete disaster to me. Maybe the people I know are just unusually financially responsible?
You definitely would enjoy reading Confessions of an Economic Hitman, the first chapter of which I have personally verified with an Indonesian diplomat.
It's not necessarily a problem so long as the debt-financed spending accelerates growth. GDP is the amount the economy generates per year. Debt is relatively fixed (unless you borrow more or have a crazy interest rate). As long as the interest on public debt doesn't outpace the tax revenues set aside to service it, they should be fine. Djibouti is a relatively undeveloped country, so infrastructure development can bring them a long way.
Even that doesn't add up. First of all, I bet that figure represents only the debt specific to this China deal, on top of whatever other debt they already had. Secondly, Djibouti's GDP was $1.7 billion (or thousand million in British wording), but the only debt figure stated was $14 billion as China's overall investment. That's like 800% of GDP using those raw figures. The truth is probably somewhere else.
Not to worry. The Chinese leadership is thoroughly pragmatic and will eventually write off as much of the balance as necessary:
https://en.m.wikipedia.org/wiki/TAZARA_Railway
The lenders will remember that they don't have much leverage over Djibouti, unlike the Eurozone with its debt trap for Greece.
I dislike this way of describing debt. Because it sounds to most people like the country owes 60% of its GDP to foreigners, and only has 40% left to live on.
A different way to express the same situation is that the debt is 7 months of GDP.
It's not a totally rosy picture across the continent. In Kenya, Chinese infrastructure projects are hugely disruptive to local communities and wildlife and are poorly managed and implemented, seemingly providing short-term improvement but questionable over the long term.
http://africanbusinessmagazine.com/region/east-africa/rising...
The only reason that you see these deals being made is because the Chinese government is interested in Africa's natural resources [1], Chinese companies are competitive in construction (not really rocket science, plus slave labour certainly provides a financial advantage [2] [3]) and government officials stand to personally make money, as nothing gets done in Africa if you don't "properly compensate" the right government officials [4] [5] (european companies know this too, but bribery is sligthly more constrained by their governments).
The end product is usually low quality, with roads cracking open as soon as rain pours, but the goal was not to provide infrastructure in the first place, so no one is remotely concerned about any benefits nor about the impact on local communities, public safety, wildlife or the environment. Guess what happens to anyone that tries to protest on behalf of these issues. [6]
These deals are rarely rosy for the general population, who will still lack water, sanitation, food, jobs and education. Even the few that managed to survive outside of city centers will see their basic livelyhood (cattle, farming) disrupted by these "developments".
There is a pattern to evolution of societies. A lot of 'third world' countries including social structures are a lot like our societies were 100-200 years ago. Anyone doing even basic research will not fail to see the similarities. There is basic survival, greed, feudal systems, corruption and the primacy of religion and traditional social structures.
Prosperity breaks a lot of these and the evolution of the west came first from economic colonialism and the resulting wealth then spurred on the growth of technology and newer economic, social and political structures.
Without the benefit of colonialism a lot of emerging economies are 'stuck' and they have to deal with extremely powerful and organized entrenched power structures and play by their rules designed to maintain their primacy at all costs.
Isn't this what 'the great game' is? Its got little to do with human rights, humanity, environment or social consciousness. Its purely driven by power, self interest and greed. Its played out in backroom deals, corruption, financial systems, collusion, dirty tricks, geo politics and wars like we see in the middle east and Russia. This is the road China is learning to navigate in Africa. A road already taken by the west 400 years ago. Exciting times ahead.
1. Africa != Ethiopia and Djibouti. It's a massive continent
2. "Joyous Africans" conjures up some pretty bad stereotypes
3. The reason they're "joyous" is only because someone else helped them?
TL;DR: The railway from Ethiopia to Djibouti failed because no one could afford to maintain it. A few years later, the Djibouti government took out a loan for the value of 9 months production from the entire country, and paid some Chinese firms to build them a brand new one.
Skimming some of the sources in Wikipedia, it looks like the maintenance and rebuilding of the previous railway stalled not so much due to cost reasons but rather political reasons in the cooperation between Djibouti and Ethiopia. I guess it's easier politically to rally around a new shiny railroad than play "who pays who" for maintenance of a 100-year-old one.
We've already asked you to post civilly and substantively, and we ban accounts that won't, so please stop this. We detached this subthread from https://news.ycombinator.com/item?id=13602887 and marked it off-topic.
