Infrastructure: the thread

I have a bridge in Oklahoma to sell you

Investor and “extreme salesman” Adam Townsend has a few thoughts on US infrastructure spending. Behold, a Twitter thread that I think is worth preserving for posterity:

Adam Townsend
@adamscrabble
1. This is going to be a fun thread, it’s gonna be about finance and U.S. infrastructure. If that’s your groove, you’re going to swing. Lets begin… Historically, infrastructure financing has been done through public authority issuance of bonds….,

2. …the interest on which is tax-exempt to the recipient. There are three problems
Lower quality revenue stream projects need an equity component or a guarantee by a creditworthy public authority or municipality. These are becoming scarcer…

3. Construction costs tend to be higher when projects are built by the government rather than the private sector. These higher construction costs offset the benefit of lower interest rates, especially in today’s low rate environment when spreads between taxable…

4. and tax-free bonds are so small
Not all projects may meet the complex eligibility rules. Public bonds need to be issued in relatively large amounts so that there is a reasonable aftermarket. The money must also be spent on the project within a certain amount of time…

5. relative to the date the bonds are issued. These restrictions limit the extent to which the drawdown of the funds can be matched to the construction schedule. In today’s especially low short-term rate environment this means the project will have to pay a negative interest rate

6. arbitrage on money it actually doesn’t need yet or get a short term construction loan and run the risk that interest rates will rise between the date that the loan is taken down and the date of the long term refinancing.

7. now.. lets talk about NEW FUNDING MECHANISMS! were talking about…Pension funds, insurers and other institutions with long-term liabilities. The long-term nature of infrastructure programs means these investments are structurally well matched to the revenue flows…

8. from the debt that finances their construction, operation and maintenance.
Recently… the Japan Government Pension Investment Fund has been in cabinet-level talks. The GPIF will purchase debt issued by American corporations to finance infrastructure projects.

9. Up to 5% of the roughly $1.14 trillion in assets controlled by the megafund can go toward overseas infrastructure projects,,, [Related: “The US and Japan have emerged as new investment destinations, making up 11% and 3%, respectively, of the total global infrastructure assets, GPIF said,” but so far this total is only a few billion dollars]
I had this discussion at cabinet level with Trumps people… lets talk about it…

10. The Trump infrastructure tax financing plan
A major private sector, revenue neutral option to help finance a significant share of the nation’s infrastructure needs. For infrastructure construction to be financeable privately, it needs a revenue stream from which to pay…

11, …operating costs, the interest and principal on the debt,and the dividends on the equity.
The difficulty with forecasting that revenue stream arises from trying to determine what the pricing, utilization rates, and operating costs will be over the decades.

12. Therefore,an equity cushion to absorb such risk is required by lenders. The size of the required equity cushion will vary with the riskiness of the project. Assuming an average leverage will be about five times equity.

13. ok, now ure bored, so its gonna get crazy fun now, cool?
Some numbers,,,
Every $200 billion in additional infrastructure expenditures creates $88billion more in wages for average Americans and increases real GDP growth by more than a percentage point.

14, Each GDP point creates 1.2 million additional jobs.
I’m gonna blow ure mind now, buckle up!

The US has infrastructure needs of about $3.6 trillion through 2020, including…

15. $1.7 trillion for roads, bridges and transit alone
Traffic delays cost the U.S. economy more than $50 billion annually
iPhones are smarter than many of our air traffic control systems

As a reward for being such a great guest, here’s a pic of me and my cat

btw, Peter Navarro who was the tzar pushing the Infrastructure plan, was moved over to Trade tzar – where he is truly
🔥
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A mot of people have asked about what Obama did with the 787 billion that was allocated for infrastructure. So, I am going to explain reality, sit back and read on. Lets begin anew…

118,000 bridges have been recorded as hazardous. This is about 30% of the American bridges yet account for only 6% of the United States population: Oklahoma, Missouri, Kansas, Nebraska and South Dakota. Iowa alone has 25,000 bridges and only 3 million citizens.

These bridges do not have an industrial use. Of our 600,000 bridges most are trafficked only by livestock and people on a scenic walk. They have nothing to do with interstate commerce, GDP growth or national public infrastructure.

There are also 19,000 structurally deficient bridges in another 35 states, these states have a combined population of 175 million and more than 600 citizens per bridge.

80% of bridges in need of serious repair are in California. They have improperly used earmarked monies for general fund expenditures. Money was allocated, it was spent elsewhere by the state (wink and nudge to the State public employee pension system. More cat pix. /End

Bridge supremacy?

Staggering. Are they building a bridge, or a bunch of skyscrapers?

Another video.

Spectacular drone footage captures the world’s highest concrete bridge under construction. The main tower of the Pingtang Bridge in Southwest China’s Guizhou Province stands 332 meters, as tall as a 110-story building. It is scheduled for completion by the end of 2019.

But wait! It looks like France keeps the crown for world’s tallest bridge:

However, France’s Millau Viaduct, arguably the most photogenic bridge of recent times, has its tallest tower listed at 1,125 ft (343 m), which would put the Pingtang Bridge in second place should all things stay the same by the time the Pingtang Bridge is completed. And while “world’s tallest” may be in dispute, there is no dispute about who leads in the total number of tall bridges. Of the 101 tallest bridges listed on Wikipedia, China has a whopping 66!

More Chinese engineering marvels:

Japan’s Belt and Road

Abe and Modi in 2016

In light of a certain state visit ongoing in Tokyo, I nominate this as the fact of the day (emphasis mine):

While Japan’s “lost decades” and China’s rise have led most observers to overlook Japan’s role in Southeast and South Asia, the country has remained an important source of development assistance, public lending, and private investment across the region, particularly as Japanese companies have extended their supply chains deeper into Asia. At the end of 2016, Japan’s stock of foreign direct investment in major Asian economies (excluding China and Hong Kong) was nearly $260 billion, exceeding China’s $58.3 billion. It is undeniable that Japan has increasingly had to jockey with China for high-profile projects as China’s footprint across Southeast and South Asia has grown. But Japan’s longstanding relationships and its long record of private and public investment across the region make it a worthy competitor with China.

Japan’s Belt and Road, particularly with US backing, could give China’s massive trade and infrastructure strategy a serious run for its money. And Japan is still the world’s third-largest economy…

Rail of fail

Nearly 420 million people are reported to have used China’s high-speed rail system during the annual Spring Festival holiday that has just wrapped up. Late last year, China opened the Vibrant Express, Hong Kong’s first bullet train, which zips passengers from the Special Administrative Region to Guangzhou in 48 minutes.

Meanwhile, in the US:

California Gov. Gavin Newsom announced Tuesday he’s abandoning a plan to build a high-speed rail line between Los Angeles and San Francisco, a project with an estimated cost that has ballooned to $77 billion.

“Let’s be real,” Newsom said in his first State of the State address. “The current project, as planned, would cost too much and respectfully take too long. There’s been too little oversight and not enough transparency.”

The idea long championed by Newsom’s predecessor, Jerry Brown, is years behind schedule. The latest estimate for completion is 2033.

Newsom, though, said he wants to finish construction that’s already underway on a segment of the high-speed train through California’s Central Valley, arguing it will revitalize the economically depressed region. He’s also replacing Brown’s head of the state board that oversees the project and pledged more accountability for contractors that run over on costs.

One can’t really blame the new governor for this, as the promise of an LA-to-SF bullet train, which California voters approved in 2008, has always been a huge scam:

When California voters approved construction of a bullet train in 2008, they had a legal promise that passengers would be able to speed from Los Angeles to San Francisco in two hours and 40 minutes.

But over the next decade, the state rail authority made a series of political and financial compromises that slowed speeds on long stretches of the track.

The authority says it can still meet its trip time commitments, though not by much.

Computer simulations conducted earlier this year by the authority, obtained by The Times under a public records act request, show the bullet train is three minutes and 10 seconds inside the legal mandate.

Such a tight margin of error has some disputing whether the rail network will regularly hit that two-hour-40 minute time, in part because the assumptions that went into those simulations are highly optimistic and unproven. The premise hinges on trains operating at higher speeds than virtually all the systems in Asia and Europe; human train operators consistently performing with the precision of a computer model; favorable deals on the use of tracks that the state doesn’t even own; and amicable decisions by federal safety regulators.

And let’s not even get started on the New York City subway.

Actually, let’s.

Mending fences

The first state visit by a Japanese leader to China in seven years suggest that the two countries, which allegedly have deep-seated mutual animosity, are in the process of strengthening ties:

What Happened: China and Japan signed multiple agreements intended to strengthen bilateral ties during the first day of Japanese Prime Minister Shinzo Abe’s official visit to China, the South China Morning Post reported Oct. 26. Both countries will cooperate on roughly 50 third-country infrastructure projects and agreed to resume currency swaps. Additionally, they will further discuss joint East China Sea energy cooperation and China’s lifting of food import restrictions following the nuclear disaster at Fukushima.

Why It Matters: Both China and Japan are recalibrating their strategies toward each other as they look to hedge against uncertainties as well as increasing trade protectionism from the United States.

This makes sense; as the neoliberal world order falls apart, regional trade blocs will emerge and solidify, and Japan and China, with their proximity and shared Confucian heritage, can be expected to align more closely.

Stratfor argues, however, that any Sino-Japanese rapprochement is complicated by China’s maritime ambitions, which clash with Japan’s interests as an island nation. Japan is also expanding its activities in the South China Sea, recently sending a submarine to conduct drills there for the first time. The duo may need to remain frenemies for a while.

Propaganda bridge?

Hong Kong-Zhuhai-Macao Bridge

Bridge to nowhere? (Hong Kong-Zhuhai-Macao Bridge)

The new Hong Kong-Zhuhai-Macao Bridge in South China is without a doubt a spectacular feat of engineering, construction, and national infrastructure planning. But… is it necessary? Or is this mega-bridge snaking across the mouth of the Pearl River Delta in fact a $20 billion white elephant?

“The delays in the construction of the bridge had given cities in the PRD region time to greatly develop their port capacity, resulting in a situation where many exporters in the delta no longer need to use Hong Kong,” said chief research officer at the Hong Kong-based One Country Two Systems Research Institute, Fang Zhou. “Other PRD bridges will offer lower tariffs than the new bridge, while existing cargo barges to Hong Kong are even cheaper.”

“In terms of time and convenience, the bridge is not so competitive,” Zhou added. […]

The strongest economic benefit of the bridge is that it can enable producers west of the Pearl River move their goods faster to the Hong Kong International Airport. In 2016, the airport has handled around 4.52 million tons of air cargo, making it the top freight transportation airport worldwide for the seventh consecutive year.

Quoting an anonymous engineer:

“The bridge could have an impact on Hong Kongers’ life style when it opens – there could be more people making the decision to find a job, or even live in China when there are more convenient ways to connect the two places.”

That’s an important point, I think. In addition to the propaganda value of binding Hong Kong closer to the mainland, the very existence of the bridge may generate more demand for cross-border travel. It’s easy to underestimate the future traffic that a brand-new, colossal Chinese infrastructure project will generate. A lot of people were skeptical about China’s high-speed rail system back in 2011, but already by 2015 the Beijing-Shanghai line was earning a profit, claiming 130 million riders (one-tenth of China’s population) that year alone.

The blogger Big Lychee is characteristically scornful:

The vast link, with three lanes in each direction, will be the World’s Biggest and Longest Slab of Concrete Over Sea in the History of the Universe. It will also almost certainly be embarrassingly under-used. Of the three cities it connects, only Zhuhai and its hinterland has capacity for extra traffic; Macau’s road network is totally full, as is downtown Hong Kong’s. Apart from buses going back and forth, and presumably some trucks carrying containers full of Hello Kitty phone cases, it is hard to see who will use it, especially given the ‘fast and convenient’ permit system for car owners.

The South China Morning Post laboriously describes the thing as part of the Greater Bay Area Hub-Zone Branding Concept. [Ed: “Greater Bay Area” is China’s scheme to link together 11 cities around the Pearl River Delta into a gigantic metropolitan region with some 67 million people.] But it is actually the other way round – ‘Bay Area’ is an extension of the bridge project, which came first as a symbol if not means of integrating/absorbing Hong Kong into the Mainland.

This will be the second approx-HK$100 billion pointless-infrastructure fiasco inaugurated within a few weeks, following the West Kowloon High-Speed Rail Vibrating Express Line Hub (which at least has some potential use for those of us with an urgent desire to get to Wuhan). It also comes in the midst of the uproar about the Trillion-Dollar Sandpit Lantau Reclamation Wacko Proposal. We are surely hitting Peak Taxpayer-Wealth Destruction Orgy.

Hong Kong Zhuhai Macao Bridge

A damn big bridge

Hong Kong-Zhuhai-Macao Bridge

The Hong Kong-Zhuhai-Macao Bridge

Meanwhile, in Asia, massive infrastructure projects continue to get built:

Chinese President Xi Jinping has officially opened the world’s longest sea crossing bridge, nine years after construction first began.

Including its access roads, the bridge spans 55km (34 miles) and connects Hong Kong to Macau and the mainland Chinese city of Zhuhai.

The bridge cost about $20bn (£15.3bn) and should have opened in 2016. […]

Designed to withstand earthquakes and typhoons, it was built using 400,000 tonnes of steel, enough to build 60 Eiffel Towers.

About 30km of its total length crosses the sea of the Pearl River delta. To allow ships through, a 6.7km section in the middle dips into an undersea tunnel that runs between two artificial islands.

The remaining sections are link roads, viaducts and land tunnels connecting Zhuhai and Hong Kong to the main bridge.

The bridge was first conceived by Hong Kong construction tycoon Gordon Wu in 1983, apparently inspired by the Chesapeake Bay Bridge-Tunnel in Virginia. Construction started in 2009 and just wrapped up in February. Talk about persistence.

Fun facts:

Special cameras will be on the look-out for drivers on the bridge who show signs of getting sleepy, among other checks – yawn three times and the authorities will be alerted, local media report. […]

And drivers will have to change which side of the road they are on at the crossing. People drive on the left in Hong Kong and Macau but the bridge is Chinese territory and special merger channels have been built to cope with this.

There’s also this ominous bit: “As drivers cross the bridge their heart rate and blood pressure will be monitored. The information will be sent to the bridge’s control centre.” What?

Video from the South China Morning Post:

America’s Belt and Road?

The US may be stepping up its game to counter China’s multi-trillion-dollar development strategy known as the Debt Trap Diplomacy–… sorry, the Belt and Road Initiative:

The US is preparing to create an agency that can invest up to $60bn in the developing world in an effort to counter what some in Washington describe as China’s use of debt to wage “economic warfare”.

In what observers say is the biggest shake-up of US commercial lending to developing countries in 50 years, the Overseas Private Investment Corporation will be folded into the new agency and allowed to invest in equity. At present Opic can invest only in debt, putting it at a disadvantage to European development finance institutions (DFIs).

Ray Washburne, president and chief executive of Opic, told the FT that China – by using what he called “loan-to-own programmes” – was “creating countries that have the shackles of debt around them”. That amounted to “economic warfare”, he said.

By more than doubling Opic’s lending ceiling to $60bn and allowing it to invest in equity, he said, it would be put on “an equal footing with other DFIs”.

According to the report, OPIC well be folded into the new agency, called the International Development Finance Corporation, and “The arrangement has been sold to the president.”

Of course, the US has other ways of creating potholes in China’s Belt and Road… This could get very interesting indeed. On a quasi-related note, China is ramping up its PR campaign in the US, according to Bloomberg reporter Jennifer Jacobs:

China Daily advertising supplement

Text of the full thread:

CHINA sends a message to Trump and Ambassador Branstad by taking over 4 pages of Des Moines Register. Advertising supplement has “news” on:

—China buying soybeans from South America due to “trade row”

—Xi Jinping’s “fun days in Iowa”

—“Beijing can set an example for the world.”

The advertisement, labeled as paid for by the “China Daily, and official publication of the People’s Republic of China” is like a 4-page tweet from the Chinese government. It calls the trade war with Trump the “fruit of a president’s folly.”

In 15 years of covering Iowa news, I cannot recall the Chinese making a play like this. Certainly unprecedented for China to take out a four-page advertisement in the DMR. [Emphasis added]

China uses this advertising format regularly—“news” inserts have appeared in Nepal, Australia, U.S., etc. per @kashishds, @lillebuen, @DavidMDrucker and others. Beijing seems to be talking straight to Trump with this Iowa ad on “China-U.S. economic interdependence.”

Newspaper advertorials are a relatively clunky way of getting the message out, and unlike, say, troll armies on social media, they aren’t plausibly deniable. Nevertheless, as much as Americans (and others) may roll their eyes at such obvious and heavy-handed PR efforts, the cumulative impact of China’s vigorous overseas messaging is likely to be non-zero.

That’s a good boy

Australian Trade Minister Steven Ciobo

Australian Trade Minister Steven Ciobo

The Australian government happily complies with China’s demand to keep the public in the dark about the terms of an infrastructure MOU between the two countries:

The Turnbull government has refused to release an agreement it signed with China covering the controversial “Belt and Road Initiative” infrastructure program on the grounds Beijing does not want it made public.

Trade Minister Steven Ciobo signed the memorandum of understanding last September for cooperation on building infrastructure such as roads, bridges and dams in third countries – including under the Belt and Road Initiative – during a visit to Beijing. […]

The MOU would be expected to state Australia’s conditions for cooperating with China – such as that projects are financially transparent, do not involve corruption, genuinely help other countries and do not burden them with unsustainable debt.

But the Department of Foreign Affairs and Trade has refused to release the agreement under the Freedom of Information Act.

Mr Ciobo told Fairfax Media that “both parties are required to agree to release the text of the MOU and China has not agreed to do so”.

Why all the secrecy? Is there some aspect of building roads, bridges and dams that needs to be concealed from the public? The comments to the article tend to indicate that the Australian people are *not* happy about this.