20 Kilometers Per Day

Jim Brown
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India is currently on a massive road building campaign to build 30,000 kilometers of roads in a five year period. That equates to completing 20 kilometers per day.

The current construction program, called the Eleventh Five Year Plan (2007-2012) is expected to exceed $500 billion (US) in spending for roads and infrastructure. $350 billion is coming from the government and $150 billion from the private sector.

Roads and highways, electric infrastructure, railroads, ports and airports will all share in the funds. There are currently over 200 road projects underway with more than 13,000 km of roads to be built. The average project size is $150-$200 million (US).

The head of the Indian development program said the next five year plan could provide another $500 billion to continue the effort. He said in order to complete 7,000 km of roads per year they had to have over 20km under construction. India has very little modern infrastructure outside the major cities.

One of the major efforts is upgrading their ports. The NHDP report said that India's ports are not sufficient in size and capacity to handle the future growth of an expanding economy. Over 275 port projects are underway with $15 billion in public money and $8 billion in private capital. India has been slow to accept the fact of its economic and technological revolution that is modernizing the country at a faster pace. India is a picture of two cultures, the very rich and the very poor. The current boom in modernization is accelerating and India has finally realized it needs not only to keep up but needs to race China to capture the global commerce it needs to thrive.

China however is on the other end of the spectrum. China's growth is already on the verge of being out of control because China has spent the money and undertaken the upgrades over the last ten years. They are still in the beginning stages but well ahead of India.

China said on Thursday that they expect to see double digit increases in auto sales in 2010. Sales soared +45% (not a typo) in 2009 to an estimated 13.6 million vehicles. They overtook the U.S. as the world's biggest auto market. However, U.S. sales were down due to the restructuring of GM, Ford and Chrysler and are expected to rise in 2010. It won't be enough to catch China where sales are expected to exceed 15 million in 2010. U.S. sales in 2009 were only 10.4 million.

Two years ago China was discouraging sales of new cars because traffic congestion was so bad. However, with the expansion of the road system and some upgrading of local infrastructure they now see auto sales as a positive piece of economic expansion. Some have claimed that the government was buying cars and storing them in warehouses to boost production and sales numbers and give the appearance of a better economy.

Jim Rogers calls this hogwash. In an economy that is selling 13.6 million vehicles per year how many would the government have to buy and store to make any real difference? A million? Where do you store a million cars assuming you actually had the money to buy them?

China is building roads at the same pace or greater than India and they are building railroads at an even faster clip. In 2006 China handled 24% of global rail traffic but had only 6% of the worlds track and much of that track was many decades old.

China spent over $100 billion on its railroad network in 2009 and plans to spend $750 billion more through 2020. Over 25,480 miles of track will be laid. That means right of ways cut on mountain sides, tunnels bored, valleys bridged, etc.

IBM opened a rail innovation center in Beijing that employed only a few dozen people in 2009 but is expected to grow to more than 1,000 eventually. China aims to be the world leader in railroad sophistication.

A fifth of the $586 billion stimulus package in 2009 was devoted to additional railroad spending. By comparison the top four railroads in the U.S. spent a total of $8 billion on improvements in 2009.

They are building a new superhighway system that will rival the U.S. concept. Given the much larger land mass and much more varied geography this is not a cheap endeavor. For instance on section of the 1100 mile long Route 3 cost $4 billion and required the construction of 430 bridges and 15 tunnels. There are also 168 remote cameras to monitor road conditions and traffic. Truly a move into the 21st century. China is even paying for portions of highways inside the territory of its neighbors to link to its superhighways.

The new road systems are opening up the interior of the country and providing access to towns and villages that only had cart paths less than a decade ago. The amount of commerce that is being generated and awakened inside China is beyond comprehension. New towns and villages are popping up alongside the freeways as people move to where they can sell their farm goods and trade with other towns now only minutes away by road instead of a week by horse or mule.

When people claim that China's economy is stumbling and could even be fictitious with numbers created by the government they only need to look at the massive modernization underway all over China not just in Beijing. If they sell 15 million vehicles in 2010, 17 million in 2011 and possibly even 20 million in 2012 they will not even have scratched the surface of people who are suddenly awakening to the idea that it is possible to have things and go places that their parents never even imagined. With total vehicles in China still less than 40 million for 1.3 billion citizens, that compares to the 450 million vehicles in the U.S. with only 300 million people. China is estimated to grow to 140 million vehicles by 2020 and 250 million by 2030. Now double those numbers when you add India into the mix. They may be behind China but they are catching up fast.

I don't understand how anyone can ignore the prospect of peak oil when we are facing an explosion of as many as 250 million new cars before this decade is over. How much oil does 250 million cars consume? The U.S. with 450 million vehicles consumed 22 million barrels per day before the recession so roughly another 12 million barrels per day just for China and India by 2020 and that does not count the rest of the world or the oil used for other purposes in those countries.

Peak oil is coming whether doubters believe it or not.

Jim Brown