First Ghost Cities in China, Now Ghost Trains to the EU

by John Galt August 20, 2019 22:30 ET

The first articles and recent ones about the infamous Chinese ghost cities appeared to support conjecture about China building cities just for the sake of building them to keep people employed with their excess foreign reserves.

Interestingly enough in tonight’s edition of the South China Morning Post appears this story:

China’s belt and road cargo to Europe under scrutiny as operator admits to moving empty containers

Within the article the report discusses that one in six rail containers are shipped empty from Chinese provinces into the European Union, a shocking figure when one thinks about the implications shipping empty containers over such great distances.

What is worse is the amount of either deliberate or wanton corruption implicated in the article:

Widespread waste and fraud associated with China’s Belt and Road Initiative has been unearthed after the country’s state railway group was forced to admit this month that a significant amount of cargo containers shuttling between Chinese factories and European cities were empty.

The admission by the state-run China Railway – the sole operator of the lines – followed an investigation by the Chinese Business Journal, a newspaper supervised by the Chinese Academy of Social Sciences, which found that in one extreme case only one of 41 containers on a particular train actually carried goods.

Of course after exposing the problem, the Chinese Communist Party “fixed” the problem:

China Railway admitted the existence of the problem in an interview with the state-run Global Times last week, but insisted it had largely been eradicated in 2018 after new rules were introduced limiting the number of empty containers allowed to just 10 per cent per train.

The company said that of all containers heading to Europe in 2018, only 6 per cent were empty, compared to 29 per cent for eastbound trains. In the first half of 2019, they said, the ratios had fallen to 2 per cent and 18 per cent, respectively.

If you believe those statistics, I have a non-existent $22 trillion in US debt to sell you. The Chinese government believes, much like their ghost cities, that marketing and promoting “modernity” and the ability to fill those cities and trains is the key to maintaining absurdly unbelievable 5%+ annualized GDP growth.

By offering the perception of hundreds of “full” containers stopping in major cities like Moscow, Prague, Berlin, Warsaw, etc., the advertising of an almighty Chinese trade powerhouse boosts the image and offers importers an opportunity to exploit cheap freight rates into Europe, crushing domestic transport options.

In the end, the Chinese game of pushing transportation prices down not only reduces competition by destroying non-Chinese competition, but as the global trade wars expands it begins the process of economic nationalism to the point where China may well indeed find itself isolated to its immediate neighbors and allies like Russia and Mongolia instead of becoming a global superpower as they wish to be recognized as.

The ultimate conclusion of this suppression of competition by the Chinese Communists will ultimately end in more deflationary pressure on an already fragile global cargo transport infrastructure. No subsidy from any government will ever create a loaded train when trade ceases and economic nationalism expands. China should heed these warnings now, before their policies create more, not less isolationist and nationalist parties in countries around the world.

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