This is a picture of the planned high speed rail network in China by 2020; the yellow represent maglevs, the rest should be apparent from the legend. If everything goes as planned, it looks like one will be able to high speed directly into Ta|wan. 台湾是中国组成的一个部分, of course, so this is only natural. Underwater maglev!?

An earlier post repeated Michael Pettis’ argument that investment in high technology doesn’t necessarily guarantee commensurate economic gain, particularly given that labor in China isn’t as productive as labor in the U.S. or Japan. Think of doctors and their secretary: a doctor could do his own scheduling, but at some income level it makes sense to pay someone else to do simple tasks. The same is probably true of a migrant worker – he’d be perfectly willing to take a 12 hour truck from Wuhan to Shanghai, and it wouldn’t have cost Chinese taxpayers quite so much to repair roads as importing a shiny new high speed train from Japan. Two things to consider:

• China’s average productivity is low, but there are several pockets of very high productivity (especially if they build the underwater tunnel to Ta|wan?) Shanghai to Beijing in 5 hours on a maglev sounds very appealing.
• Productivity is increasing over time, and since the results of infrastructure investment don’t really go anywhere (harder to build when the Yangtze River Delta has 150 million people living in it); they might as well over-invest while labor is cheaper?

Non-performing loans will certainly increase as a result of the current investment binge, but the magnitude of increase in totally unserviceable NPLs will largely be determined by how fast productivity and general economic conditions play catch-up with a deep and advanced capital structure. Large scale infrastructure investment tends to be path dependent, especially when you can’t bulldoze any house in your way at whim (I [perhaps naively] believe that institutions will continue to liberalize in China. For the moment it’s a lot easier to draw a line on a map and say BUILD, peasants be damned). Had the US built an extensive rail network along with the interstate highways in the 1950s we might not be quibbling over ethanol.