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from Breakingviews:

China’s subway splurge only half on right track

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Take a trip on Beijing’s subway during rush hour and it’s clear that building more lines is a good idea. Asking international capital markets to pay for them, though, is not. Beijing’s issue of a $190 million bond to finance urban transit has been a hit with investors. But in general, public funding for public transport still looks the best route.

Subways are an example of good-bad investment. The good is that urban mass transit helps China accommodate the extra 14 million or so city dwellers it is adding every year, improve their productivity, and reduce the fossil fuels required to transport an increasingly mobile population. Then there are non-financial benefits like cleaner air, and practice at building high-tech projects.

Financially though, subways usually run off the rails. Even London’s mature network will make a loss this year after factoring in capital expenditure. Hong Kong only makes a profit because of its unique system of using property endowments to subsidise the rails that run under them. China’s property auction system makes that hard to replicate on the mainland. Balancing the cash flows is even harder because of the People’s Republic’s fixation on keeping ticket prices down. Beijing’s subway costs 2 yuan ($0.33), regardless of whether the passenger travels 500 metres or 50 kilometres. Ticket fees would have to double just to cover operating costs, according to Standard & Poor’s.

from MuniLand:

America’s unstable road funding

Congress General Fund

The national account to fund America’s highway construction and other transportation is nearly empty. The revenues that go into the Highway Trust Fund, which come from a federal 18.4 cent per gallon tax on gasoline, are expected to dip below $4 billion in July. Congress has transferred monies from the general fund in four of the past five years (the yellow stars above) into the Highway Trust to make up for the shortfall from the fuel tax.

In anticipation of the fund’s drawdown, Transportation Secretary Anthony Foxx alerted said that the federal Department of Transportation would go into “cash management,” possibly delaying payments for state road projects.

from Expert Zone:

Indian markets: Earnings in focus, better to stick to fundamentals

(Any opinions expressed here are those of the author and not of Thomson Reuters)

It’s reasonable to ask whether the Indian stock market has lost steam after the blistering run-up seen over the past couple of months. Since August, the markets have rallied about 40 percent, with many stocks in high-beta sectors such as infrastructure generating a return of more than 100 percent. At a one-year forward price-to-earnings (P/E) multiple of 15x, the Nifty isn’t exactly cheap for retail investors right now.

The Narendra Modi-led government, which contested and won the elections on the development plank, is expected to push for reforms in no time, taking on knotty issues related to taxation and infrastructure.

from Expert Zone:

A shortcut to industrial recovery

(Any opinions expressed here are those of the author and not of Thomson Reuters)

A worker sprays water over piles of coal at Mundra Port Coal Terminal in the western Indian state of GujaratThe rate of growth in infrastructure industries falling to 2.6 percent in FY2013-14 came as a shock. That’s because these industries had been consistently growing at relatively high rates in the previous three years, in spite of the drop in production in other industries.

Infrastructure industries include coal, crude oil, natural gas, refinery products, fertilizer, steel, cement and electricity. Production of natural gas has been shrinking since FY2011-12. Even so, the infrastructure group maintained steady growth between 5 percent and 6 percent. The sharp drop last year was caused by lower growth in the steel and cement industries.

from Breakingviews:

Carlyle descends into a public-private inferno

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

A Carlyle Group investment in Montana lays bare why so many roads are paved only with good intentions. The mayor of Missoula, a city of about 70,000 once known as Hellgate Trading Post, is trying to seize the local water utility from the buyout firm. The confrontation shows why joint efforts between public and private entities to improve infrastructure don’t proliferate.

from Breakingviews:

Privatisations a bright spot for gloomy Aussie M&A

By Una Galani

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Privatisation is a bright spot in what looks to be an otherwise dreary year for Australian dealmakers. The country is set for a flurry of activity as cash-constrained local governments prepare to flog existing infrastructure assets in order to fund new projects and create jobs.

from The Great Debate:

The middle class’s missing $1.6 trillion

The United States was the world’s first middle-class nation, which was a big factor in its rapid growth.  Mid-19th-century British travelers marveled at American workers’ “ductility of mind and the readiness…for a new thing” and admired how hard and willingly they labored. Abraham Lincoln attributed it the knowledge that “humblest man [had] an equal chance to get rich with everyone else.”

Most Americans still think of themselves as middle class.  But the marketing experts at the big consumer goods companies are giving their bosses the unsentimental advice that the middle class is an endangered species. Restaurants, appliance makers, grocery chains, hotels are learning that they either have to go completely up-scale, or focus on bargains for the struggling and budget-conscious.

from The Great Debate:

The other inequality is structural

For the second year in a row, the issue of economic inequality was featured in President Barack Obama’s State of the Union Address. Even some Republican lawmakers have now dared to speak the “i-word.”

Though Obama predictably avoided comparisons between the earnings held by the top 1 percent and the 99 percent of Occupy Wall Street fame, the message was familiar: The widening income gap between the very rich and everyone else is a stain on the social compact and a serious problem for future economic growth.

from MuniLand:

The Senate’s latest twist: The American Infrastructure Fund

A bipartisan group of eleven U.S. Senators, led by Colorado Democrat Michael Bennet, has filed legislation to create the American Infrastructure Fund. Senate bill 1957 would:

Provide bond guarantees and make loans to states, local governments, and   infrastructure providers for investments in certain infrastructure projects, and provide equity investments in such projects, and for other purposes.

from The Great Debate:

A ‘Marshall Plan’ for Africa’s employment challenge

To Africa’s many challenges, add one more: unemployment.

Unemployment, independent of any other factor, threatens to derail the economic promise that Africa deserves. It’s a time bomb with no geographical boundaries: Economists expect Africa to create 54 million new jobs by 2020, but 122 million Africans will enter the labor force during that time frame. Adding to this shortfall are tens of millions currently unemployed or underemployed, making the human and economic consequences nearly too large to imagine.

Thus, even with the strong economic growth we have seen over the past decade, job creation in Africa remains much too slow. Africa needs a comprehensive, coordinated approach akin to America’s “Marshall Plan” in Europe after World War Two. That effort focused on building infrastructure, modernizing the business sector, and improving trade. By the end of the four-year program, Europe surpassed its pre-war economic output.

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