Why Would a Foreign Country Finance California High Speed Rail?

Analysis by Noel T. Braymer

After several near death experiences the California High Speed Rail project is poised to soon start construction for 130 miles of new railroad in the San Joaquin Valley. This is assured with almost $6 billion dollars in funding from Federal and State sources. This is after several changes were made as part of the final draft of the California High Speed Rail Business Plan in 2012. The current Business Plan calls for 300 miles of 220 miles per hour railroad to be built and running between Merced and the San Fernando Valley by 2022. To do this will require an additional $26 billion dollars to the $6 billion dollars already funded. The expectation is with the new 300 mile core service with connections at both terminals by rail to most of California this service will be able to operate at a profit and service new private debt to continue to expand the system.

The California High Speed Project has planned all along that about half of the construction would be paid with private financing. The former CEO of the California High Speed Rail Authority, Roelof van Ark said that private investors were interested in the project. But these investors would only get involved after there was direct High Speed Rail service to either Los Angeles or San Francisco and it was operating at a profit. This 300 miles service between Merced and the San Fernando Valley is planned to get California High Speed Rail to the point it can attract private investors. The big question now is will California High Speed Rail be able to raise the additional $26 billion dollars to build the 300 mile service by 2022?

Recently California Governor Brown was in China promoting the idea of China financing the construction of California High Speed Rail. In the past along with China; South Korea, Japan, Germany and France have voiced interest in building California High Speed Rail. What would these countries want in return if they finance construction in California? Clearly they would want the contracts for construction, operations, vehicle and right of way maintenance as well as employee training for their county. Most countries have Import-Export Banks which could be used to fund this project at a low interest rate at a time interest rates are already at a near record low. China, Germany and South Korea all have trade surpluses with the United States which mean they have dollars they can use to invest in this county. France and Japan both have stagnant economies and subsidizing construction of High Speed Rail in California could stimulate their economies as well as those of China, German and South Korea.

What other political reasons might motivate a country to get involved in California besides the possibility of making money or boosting their economy? What might be more important than financial gain to another country’s self-interest? We can call this reciprocity. It is the old concept of “I did you a favor, now you owe me one.” Much of the United States Foreign Aid since World War II has been based on reciprocity in the form of loans. The United States often loans money to counties for major projects. These projects are designed and built by American Companies and often use American materials. The debt from the loans is often a major burden for these small countries and leave them almost permanently in debt to the United States.This by design. Because of this the United States can count on the “support” by these indebted countries for United States Foreign Policy. China uses trade and development as a major part of their Foreign Policy to improve relations, particularly those countries with Oil or other resources vital to the Chinese economy. Much of the talk about the massive foreign debt of poor countries is the result of a deliberate policy of rich countries to insure poorer countries are indebted and dependent to them.

What might other countries want from California? There is the prestige of building the first true High Speed Rail service in the United States. Many countries could use the economic stimulus of such a major project for their industries and this could open the door for more projects around the United States in the future. China might want better relations with the United States and less criticism of it in this country. Developing better ties and gaining influence in California will increase another country’s influence throughout the United States. Japan and South Korea who have differences with China might want to block China from gaining influence here. With the economic problems in the Euro Zone, Germany and France could well be interested in creating economic stimulus with construction in this country.

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