By William Mellor
Bloomberg, 2006-08-29
When former McKinsey & Co. consultant Ben Tsen boarded the first-ever train from Beijing to Tibet on July 1, the 48-hour journey in a sleeper berth cost him less than $100. His eventual outlay on Tibetan rail travel, he says, will be more like $100 million.
Even before China opened the world's highest railway line, over 5,072-meter-high (16,640-foot-tall) Tanggula Pass, investors such as Orange County, California-born Tsen, 33, were betting that they could profit from it.
In Tsen's case, that meant his company, Rail Partners, striking a deal with China's Ministry of Railways and Montreal- based rail-carmaker Bombardier Inc. to operate three private luxury tourist trains along the 4,064-kilometer (2,525-mile) route to the Tibetan capital of Lhasa.
Tibetan companies that manufacture everything from beer to copper to herbal altitude sickness potions have been eagerly awaiting completion of the rail line. Shares in listed companies that do business in Tibet have climbed as much as 300 percent in anticipation of new markets, cheaper freight rates and increased tourist numbers. An index of eight Tibetan companies listed on the Shanghai and Shenzhen stock exchanges rose 65 percent for the year ended on Aug. 29, according to data compiled by Bloomberg, compared with a 43 percent rise for the Shanghai Composite Index.
``Tibetan stocks have become theme stocks,'' says Chris Ruffle, 47, who helps manage $21.5 billion at Edinburgh-based Martin Currie Investment Management Ltd. ``They're going up even if they're 1,000 kilometers away from the railway.''
Beer at Top of World
Among the winners is Tibet Lhasa Brewery Co., which is 33 percent owned by Danish brewer Carlsberg A/S, and 50 percent owned by a local-listed company called Tibet Galaxy Science & Technology Development Co. Tibet Galaxy's stock increased 73 percent to 6.71 yuan in the year to Aug. 10, when shares were suspended from trading while the company undergoes restructuring as part of the Chinese government's efforts to sell off previously untradable state-owned shares. Lhasa Brewery's slogan is ``The Beer on the Top of the World.''
Chinese officials say that the opening of the railway will mean a rise in Tibet-bound tourists from 1.8 million in 2005 to 2.5 million this year. The line will also bring new streams of ethnic Chinese settlers that actor Richard Gere, chairman of the Washington-based International Campaign for Tibet, says will accelerate the destruction of Tibetan culture -- and make it easy to supply the Chinese military based there.
A Beijing-Lhasa rail link was first talked about by Sun Yat- sen, founder of modern China, after the fall of the Qing dynasty in 1911, according to Xinhua, the official news agency.
Deng Revives Idea
Mao Zedong revived the idea in the 1950s; those plans fell victim to the chaos of the Great Leap Forward and the Cultural Revolution. Deng Xiaoping revived the idea when he came to power in 1978, and the section from arid Qinghai province's capital, Xining, to Golmud, 2,800 meters above sea level, was finally opened in 1984.
It wasn't until 2000 that former President Jiang Zemin gave the order to proceed across the Tibetan border to Lhasa. More than 100,000 workers labored on the line. During the five- year construction period, 40 workers died, according to Zhu Zengsheng, deputy director of the Qinghai-Tibet railroad office, most in accidents on the road adjacent to the railway.
Some 550 kilometers of the track had to be laid over frozen tundra in temperatures that plunge to minus 35 degrees Celsius (minus 31 degrees Fahrenheit) in winter and then rise as high as 30-plus degrees in summer, causing the permafrost to turn to unstable mud that's impossible to build on.
Sinking into Permafrost
Railroad officials tried to solve the problem by constructing a 180-kilometer network of bridges and causeways over the most- troublesome patches of frozen earth. At some locations, they have piped super cold liquid nitrogen below the rail bed to keep the ground temperature constant.
Already, there's trouble. In some sections, the concrete in the rail bed has developed surface cracks, and foundations are sinking into the permafrost, according to Xinhua. On Aug. 9, Xinhua quoted Ministry of Railways Vice Minister Song Yongfu as saying the ministry would take measures to deal with such difficulties.
Some investors started counting their profits from the new train line early on. Fairfield, Connecticut-based General Electric Co. will gross about $150 million for 78 custom-built locomotives. Although China builds its own locomotives, it chose instead to use teams of three 3,800-horsepower GE engines for the haul up to Tibet.
For rail cars, it turned to an existing joint venture between Bombardier, the world's biggest rail-car manufacturer, Power Corp. of Canada and a Chinese partner. Their engineers created cars with an oxygen-enriched air supply to compensate for the 40 percent decrease in oxygen content at Tibet's highest altitudes.
Raging Thunderstorms
The cars come equipped with emergency breathing masks, windows that shield passengers from ultraviolet rays and lightning protection equipment. On the high plateau between Mount Everest and the Kun Lun and Tanggula mountains, thunderstorms rage an average of 82 days a year, according to Zhang Jiangwei, Beijing-based president and chief country representative of Bombardier China.
The rail cars are sealed to keep the elements out and the oxygen in. ``Our cars look classical, but not one screw remained classical when adapted to the Tibet operation,'' Zhang says. Bombardier and its two joint venture partners will bank $281 million in sales for 361 passenger cars.
A Hyatt in Lhasa
The flood of new tourists will be a boon to Tibet's hotel industry. The first big new hotel is likely to be a Hyatt, officials say. Beijing-based Citic Group, China's biggest in- vestment company, last year signed an agreement with the Lhasa city government to build a Park Hyatt, according to the China Tibet Information Center. The hotel will cost $25 million, the Tibet Government Commerce Bureau said in February.
Daniella Wu, a Hong Kong-based spokeswoman for Global Hyatt Inc., says she can't confirm Hyatt's involvement, since a management agreement hasn't been signed. ``Hyatt is always very interested in opportunities in Tibet,'' Wu says. ``It's one of the finest tourist attractions in the world, and the train is exciting news.''
The railway itself is an engineering marvel, says Lou Thompson, a Washington-based rail consultant who was the World Bank's chief railway adviser from 1986 to 2003. ``This is probably the largest and grandest piece of railway construction anywhere in the world in the last 20 years,'' he says. ``It's comparable to the Channel Tunnel link in Europe.''
Auld Lang Syne
Reporters were given rare permission to visit Tibet via the first scheduled train. Number T27 departed Beijing at 9:30 on a sultry summer's evening with strains of ``Auld Lang Syne'' playing on the station's public address system. The train sped at 140 kilometers per hour through the teeming cities and lush rice fields of China's heartland and then jolted to a halt a day and a half later at the western outpost of Golmud. There, three new GE locomotives were attached.
Then the real adventure began. As the sun rose over the Tanggula mountain range, which guards Tibet's northern frontier, the train snaked its way up toward the high plateau James Hilton fictionalized as Shangri-La in his novel ``Lost Horizon.''
At 3,500 meters, pens began to leak in reporters' pockets as the high altitude thinned the ink. At 4,500 meters, laptop computers began malfunctioning. So did human bodies. In hard seats and soft sleepers, passengers laid low by altitude sickness reached for the oxygen supply apparatus attached to every seat and pushed tubes up their nostrils. A doctor and nurse paced between compartments checking those who seemed most ill.
Shaggy Yaks
For passengers not afflicted, it was the view that was breathtaking. Glaciers reflected off arctic-blue lakes. Shaggy yaks grazed on green summer pastures. Herdsmen waved and antelope scattered as T27 approached, albeit at a reduced speed of 100 kph over the permafrost.
At one-kilometer intervals, security forces stood guard along the tracks. ``The People's Armed Police are determined to protect the railway and make the running safe and smooth,'' a banner at Nagqu station read.
From there, the train descended into the Lhasa River valley, still 3,600 meters above sea level. In Lhasa, passengers stepped out into a new railway station modeled on the Potala Palace, once the hilltop residence of the Dalai Lama, Tibetan Buddhism's spiritual leader that dominates the capital. All around were snowcapped peaks: to the South, the Himalayan chain arcing west toward Mount Everest; to the north, the Kun Lun and Tanggula ranges.
The Chinese national government spent $4.2 billion to extend the existing rail network 1,142 kilometers from Golmud to Lhasa, rail office director Zhu says.
$49 One Way
Even while the railway increases business opportunities in the region, the government-owned line will itself lose money, Thompson says. Passenger fares are as low as $49 one-way for a so- called hard-class seat -- a thinly padded chair with no amenities.
Freight capacity is 7.5 million tons a year and charges have been set at 1.5 cents a ton, according to railway officials. That's a little less than international standards, Thompson says, while costs will be high to maintain the road bed and bridges across some of the world's most hostile terrain.
Champa Phuntsok, chairman of the Beijing-appointed Tibetan regional government, says the new railway will speed up economic and social development for all Tibetans, who are among the poorest people in China. ``This is a magical road of heaven,'' Phuntsok told reporters.
Just 2.8 million Tibetans live in the Tibet autonomous region, which is the size of France, Germany and the U.K. combined. Gross domestic product per capita in Tibet has only just passed $1,000, according to Phuntsok, 59. That's 40 percent below the national average and one-seventh that of Shanghai.
Developing the West
The yak herdsmen and barley farmers of rural Tibet earn an average of just 71 cents a day. Tibetans have the lowest life expectancy in China: 67 years compared with a national average of 73.
The railway is one leg of a larger development plan for Tibet and other western provinces, says Jiang Yu, a spokesperson for the Ministry of Foreign Affairs. From 2001 to '05, China spent 5.77 trillion yuan ($724 billion) -- almost one-third of its annual GDP -- on roads, railways and gas, oil and hydroelectric projects in the West, according to the National Bureau of Statistics. That includes the $22 billion Three Gorges Dam in Hubei province, which can generate as much electricity as 10 nuclear reactors, according to the China Society for Hydropower Engineering.
Tibet and other mountainous regions, where great rivers such as the Yangtze and Mekong plunge through giant gorges, will be a future hub of hydropower. ``We are going to be transporting electricity from West to East,'' Phuntsok says. ``And companies from abroad are welcome to develop water resources in Tibet.''
Mine Shares Soar
Tibet is also a valuable repository of mineral wealth. Tibet Yulong Copper Industrial Corp., a private company 39 percent owned by Hong Kong-listed Zijin Mining Group Co., has begun preliminary construction on China's largest copper mine, near Jomda, 1,000 kilometers east of Lhasa, Zijin Chairman Chen Jinghe said at an August press conference.
The mine has 6.5 million metric tons of reserves. Phuntsok says Tibet has other copper deposits to exploit. ``We are going to gradually accelerate development of copper so as to benefit the people of Tibet,'' he says.
Shares in Zijin Mining, which also runs China's biggest gold mine, soared 287 percent to 3.76 Hong Kong dollars on Aug. 29 from 97 Hong Kong cents a year earlier. Sean Zheng, who helps manage $100 million at Beijing-based Dingtian Asset Management, says developing the remote mine won't be easy. ``In the short term, it's a challenge,'' Zheng says. ``But in the long term, it's good for the company and very good for China.''
`Wholesale Rape'
Activist Gere says the rail line and other development will benefit only Beijing. ``It's going to lead to a wholesale rape of Tibet's natural resources,'' Gere, 57, said in an interview. Gere, a practicing Buddhist, is a devotee of the Dalai Lama, who fled his homeland in 1959 after a failed uprising and now heads a Tibetan government in exile in India.
Over the centuries, Tibet was repeatedly overrun by Mongol and Manchu invaders, with sporadic periods of independence. After the fall of the Qing dynasty in 1911, it was an independent theocracy headed by successive Dalai Lamas.
Two years after Mao Zedong's communists seized power in 1949, People's Liberation Army troops conquered Tibet with little resistance. The Chinese takeover was a ``peaceful liberation,'' says Phuntsok, and saved Tibetans from feudal serfdom. In recent years, the Dalai Lama has dropped his demand for an independent Tibet, saying he would settle instead for ``genuine autonomy.''
`Too Many Chinese'
Gere laments that the railroad will bring more ethnic Chinese to Lhasa, where he says they already are a majority of the provincial capital's population of 500,000. Phuntsok responds that many of the Chinese in Lhasa are temporary residents doing business there and that 90 percent of the city's population is Tibetan.
The Dalai Lama's supporters say they welcome investment that gives opportunities to Tibetans. ``I have nothing against these companies making a profit, but I do have a problem with them making a profit when it brings about the destruction of the Tibetan people and their culture,'' Gere says of Bombardier and GE.
Spokesmen for the companies say they have no qualms about their involvement in the rail project. ``Railways bring benefits that result in improved living conditions,'' says Patrick Jarvis, a spokesman for GE. Bombardier China President Zhang says his company supplied only passenger cars and wasn't involved in the decision to build the railroad.
At Lhasa's 1,300-year-old Jokhang monastery, a 28-year-old monk has a dim view of the railway. ``I don't think it is a good thing,'' he says. ``It will bring too many Chinese here.''
Yak Herders' Bonanza
Laurence Brahm, a New York-born, Beijing-based lawyer and entrepreneur who this year opened House of Shambhala, a 10-room boutique hotel in Lhasa, says he's not deterred by tensions over Tibetan politics. ``I have a very strong feeling they are going to solve this issue by 2008, when Beijing hosts the Olympics,'' Brahm, 45, says. ``I would not put my time and money here if I wasn't optimistic.''
Nu Jo, 66, a grizzled yak herder on the windswept Tibetan plateau, says the railroad will be a bonanza. Last year was a record year for his family of nine, he says. First, there was the 2,000 yuan he earned from the meat, yogurt and cheese he obtained from his 70-strong herd of yaks. Then, with his rickety three- wheeled tractor, he made 9,000 yuan by hiring himself out to the ministry of railways to help build track across his grazing land.
Now, Nu Jo, who until this year had never seen a train, is betting 2006 will deliver him another financial bonus when he and his neighbors start using the new railway to ship their yak meat and yogurt to faraway markets.
Spurring Beer Consumption
In Lhasa, both local companies and multinationals are hoping to profit in Tibet and other western provinces. Carlsberg, for instance, owns stakes in breweries in Gansu, Ning-xia, Qinghai, Xinjiang and Yunnan, all of them among China's poorest provinces.
``Economic development is far behind east and south China, and beer consumption in Yunnan is one-quarter of the national average,'' says Jesper Madsen, 52, senior vice president in charge of Asia for Carlsberg. ``We see this as a growth region.''
In the past two years, Lhasa Brewery has spent 380 million yuan to triple the factory's capacity to 150,000 tons of beer a year. It expects the railway to reduce the company's freight costs by about two-thirds and enable it to export to the rest of China and abroad. ``With the coming of the railway, the company's cost base will collapse,'' says Ruffle, who says he sold a 4 percent stake in Tibet Galaxy earlier this year to take profit.
Clean, Clear Water
Wallace Yu's Tibetan investment is in Lhasa Beer's most important ingredient, the autonomous region's clear, clean water. Yu, a Canadian-Chinese investor, has spent $30 million so far to set up Tibet Glacier Mineral Water Co., located 4,330 meters up a mountainside, a three-hour drive north of Lhasa.
``It's the biggest investment I ever made,'' says Yu, 50, who is calling his water ``5100'' after the altitude of his source. ``And it wouldn't have been possible without the railway because this water is a premium product mostly for export.''
No industry will benefit more from the new railway than tourism. In 2004, 1.25 million visitors arrived in Tibet to explore the Potala Palace, the Jokhang monastery and the streets of the ancient Barkhor quarter. This year, the new train will bring in an additional 600,000 visitors, according to the China Tibet Tourism Bureau. By 2020, the bureau says, Tibet will host 10 million tourists a year, who will spend $2.3 billion, or 18 percent of the region's GDP.
New Silk Road
``My biggest headache used to be having enough money to restore the palace,'' says Qiangba Gesang, director of Potala, where tourists wander the labyrinthine rooms by the light of flickering butter lamps -- lanterns whose fuel is oil made from yak butter. ``Now that the government has given me enough money, my headache is to protect it from too many tourists.'' When Qiangba, 64, took the job in 1988, the palace received 90,000 visitors a year. Next year, he says, it will greet 600,000.
Now, Phuntsok has an even grander vision. He wants to make the rail line part of an international trade route to India, with which Tibet has a 1,000-kilometer border. The main motivation is to spur cross-border trade between two of the world's fastest- growing economies, since Lhasa is closer to Kolkata (formerly Calcutta) than it is to Beijing.
In July, China and India reopened the 4,545-meter-high Nathula Pass across the Himalayas, a trade route dating back to the Silk Road that had been closed since the two neighbors fought a border war in 1962. So far, 44 products are permitted to cross the border, including raw silk and yak's tails from Tibet and textiles, liquor, cigarettes and barley from India.
China has only agreed to extend the line to Xigaze, 250 kilometers southwest of Lhasa, well short of the Indian border, according to Yu Yungui, a Xigaze prefecture official quoted by Xinhua. Rail Partners' Tsen might have to wait a few years before he can steer his luxury trains from the serenity of Tibet to the hurly-burly of Kolkata.
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