Some articles just jump right out at me as easy posts, and this was so when I saw a link summary in the WSJ titled "Narrowing the Gap" and discussing railways in China. The link takes you to an article titled "China Expands Rail System in Effort to Narrow Prosperity Gap," which is written by Bruce Stanley with contribution from Juying Qin. Directly or indirectly, China railways been covered before here, as well as at other blogs, notably in the posts listed below:
But what I like about this article is how it takes a topic I have been interested in since reading Tom Barnett's work--that is his work on "shrinking the GAP"--and melds it with the role of supply chain logistics in making that shrinkage happen. This melding was my entire inspiration behind the FAR matrix I created almost one year ago (image below).
Basically, before even reading the article, we can begin to brainstorm via the matrix above just how a physical architecture such as the railway network in China will have an impact on the above listed flows. From the article's title, we can assume it leans towards focusing on economic and people flows, and the first few lines confirm this slant:
China, worried about the wide income gap between its highly developed coastal areas and its lagging interior, is looking to railways to help spread the wealth.
In recent years, China's breakneck economic growth has lifted millions of people out of poverty. But the economic divide that growth has left behind poses a challenge for the ruling Communist Party, which has staked its legitimacy on its ability to make people richer and is worried about the potential for social unrest.
That last comment illustrates just how interconnected flows can be (economic and political, in this example), and the article goes further to illustrate the current Chinese Premier's concern:
Chinese Premier Wen Jiabao addresses the wealth gap in speeches and policy initiatives. The government's latest campaign: upgrade China's vast -- but overburdened -- rail system to link more parts of the country to one another and to overseas markets. Or, as China's policy makers put it: "to build up a harmonious socialist society, the development of railways has to be sped up."
The data here is pretty hefty, and one can just imagine the connectivity that will be driven by each section of railway being laid to the earth:
The plan calls for the government to nearly quadruple its investment in the nation's railroads to almost $200 billion by 2010. The aim is to create 10,500 miles of new track, much of it in underserved central and western China. By the end of the decade, if China meets its goal, the rail system will have grown to more than 56,000 miles.
For readers of this blog and other logistics blogs commenting on Asia, it is no surprise that the current status of China's inland infrastructure is lacking and behind the pace of its own economic growth, and most significant advances in logistics, along its eastern seaboard. WSJ provides a nice summary without digging into my archives, where you can find more details:
The investment would provide a missing link in China's logistical infrastructure. The nation's seaports are among the world's most modern and efficient, but its railroads, which could be supplying these ports with a lot of the goods they send abroad, aren't up to the task.
In many other countries, railroads carry as much as 20% of all containerized freight; China's historically underfunded tracks transport less than 2% of its shipping containers. Almost all of China's exports arrive dockside via truck. Yet trucks in China are cost-effective only over distances of roughly 300 miles, or a single day's road journey, according to transportation experts.
Of course, that state of this physical architecture impacts the decision-making of businesses around the world when considering China for investment:
Investors who want to produce goods for export have balked at building factories in provinces where reliable transportation links to seaports are scarce. As a result, investment in Chinese export-oriented industries has been concentrated overwhelmingly along the coasts and major rivers near China's ports. James Wang, a transportation geographer at the University of Hong Kong, calculates that no less than 94% of China's international trade value is generated within 150 miles of the coast. This investment pattern deepens the country's internal economic fault line.
Where economic flows don't reach the people, the people go to where they can tap into it themselves:
Large numbers of Chinese have moved from inland regions to find better-paying jobs in coastal enclaves. Economist Sir W. Arthur Lewis, who studied Britain's colonies, noted the propensity of people to migrate to the capitalistic sector if wages there were attractive.
"The pattern of development that you are seeing in China is very similar to an African, colonial model. It centers on the seaport -- that's where globalization came in," says Becky P.Y. Loo, who, like Mr. Wang, is a transportation geographer at the University of Hong Kong.
Because China's inland ground transportation and mobility has been so poor, I believe that the growth of China's inland cities has a great deal to do with the concentration of large populations as well as the airport infrastructure being the first priority of investment by the government up until now. When necessary, businesses in these areas deal with the ground logistics difficulties while anticipating future improvements. In terms of models, Tom Barnett has before mentioned the westward movement of people in America's own history when discussing China's "Go West" policies, and the WSJ also notes the parallel:
Railways offer the prospect of bringing China's two economies closer together. If the colonial model is in some respects where China's rail system finds itself today, the transformation of the U.S. economy in the late 19th century is closer to where Beijing wants to go. In the U.S., the completion of the first transcontinental railroad in 1869 connected the industrializing eastern states with the Pacific coast. That rail link and others built in later years were crucial in opening the sparsely settled Western territories to settlement and making possible the development of ranching, mining and other businesses.
And back to the flows:
China already has a rail link to distant Tibet, completed just last year. The railway buildout, however, could have an important impact on the flow of people and goods and on the spread of prosperity in the nation.
And circling back again, step 1 is ensuring that physical architecture is solid:
A centerpiece of the plan is the creation of 18 logistics centers to expedite the distribution of containers throughout China. The plan also seeks to boost railway container traffic by promoting the use of double-stack container cars.
Those crunching the numbers on a daily basis for supply chains around the world know the benefits of reducing total logistics cost via intermodal benefits, and it is satisfying the Chinese are being aggressive towards providing more logistics efficiencies via higher quality in intermodal options. In the end, the actual results of this initiative will be evaluated on the ground rather in the total outlay of investment cash.
