y William Pesek
July 29 (Bloomberg) -- You can tell a lot about a country
from riding its trains.
Germany’s rail system speaks to its engineering prowess.
Japan’s vast Shinkansen network showcases its technological
proficiency. Switzerland’s on-time trains demonstrate a nation’s
precision, the U.K.’s chronically late system speaks to the
patience of a people and Singapore’s spotless subway cars hint
at the city-state’s orderliness.
By contrast, India’s trains display the backward state of
vast swaths of an otherwise modernizing economy. And the U.S.’s
dilapidated Amtrak brand is emblematic of infrastructural
neglect and a reluctance to invest that undermines growth.
Until a deadly July 23 crash, China’s rail ambitions were
zooming along in tandem with its economic boom. The rail program
added new superlatives to the China narrative -- world’s fastest
train, longest high-speed system. Now it stands as an apt
metaphor for the nation’s economic journey.
Here are five things Saturday’s tragedy says about China:

Hypergrowth’s Risks

One, hyper-growth has its risks. Officials in Beijing are
quickly learning that China’s impressive performance post-Lehman
Brothers resulted in a number of excesses that the second-
biggest economy must now bring under control. Three come to
mind: asset bubbles, a surge in local-government debt and
holding too many U.S. Treasuries.
China must maintain growth in the vicinity of 9 percent or
10 percent to raise living standards and keep the masses from
heading to Tiananmen Square with protest banners. Yet inflation
is accelerating, and policy makers need to act fast to make sure
China’s long-term economic trajectory isn’t undone by today’s
imbalances. The train crash that killed 39 people makes you
wonder about the underpinnings of China’s development.
Its economic model champions growth and generational jumps
in technologies. China seems to have little time for developing
indigenous brands -- it’s more interested in buying established
overseas businesses and demanding technology transfers as the
price of access to its markets. The trouble with skipping some
of the development steps is that sometimes you trip.

Black Swans

Two, beware the lightning strike. Last week’s accident
occurred, according to Chinese authorities, after lightning
struck a train, causing another to rear-end it. Consider this
the transportation industry’s answer to a Black Swan event.
Yesterday, new reports suggested that a design flaw in a
signaling system contributed to the accident.
The thing is, China is being studied under a microscope for
signs of stress that could cause its economy, and by extension
the global economy, to unravel. But it’s as likely to be an
utterly unexpected event -- an earthquake in Beijing, a rural
uprising in Chongqing, a nuclear accident in Qinshan -- that
could precipitate a crisis.
When we think about the spark that might lead to a
challenge to the Communist Party’s authority, we tend to focus
on conventional risks such as plunging stocks or public anger
about corruption. If anything destabilizes China, it’s likely to
be a bolt from the blue -- like Saturday’s accident.

White Elephants

Three, know your audience. All developing economies that
suddenly get cash rich can’t resist building white elephant
projects in pursuit of superlatives, be they vertigo-inducing
skyscrapers or record-breaking trains. But if China’s effort to
balance its export success with a strong domestic market is to
succeed, look for the economic development that reflects the
economic status of the majority. That’s more likely to be mobile
phones and shampoo than high-speed trains.
Even before the crash, this program was controversial
because the vast majority of Chinese could never dream of
affording a ticket. As much as China’s high-speed rail system
demonstrates the nation’s technological great leap forward, it
serves as a reminder of the widening gap between rich and poor
in a supposedly communist nation.

Learning Experience

Four, transparency is your friend. An accident is a
learning experience -- it must be to prevent a recurrence. To
learn what happened, you need a full, open and reasonably
independent investigation. The opposite is happening.
The clearest indication of that was the burying of parts of
the train wreckage. China’s claims that it was merely clearing
the area to facilitate rescue vehicles are beyond laughable.
Also, the Chinese news media has been directed not to report
aggressively on the crash but to focus on heart-warming human
interest stories of brave and loyal bystanders rescuing victims.
Really, who do Chinese officials think they are kidding
here? Such institutional dishonesty will only increase global
skepticism of China’s leaders. Saving face in Asia is very
important, but it’s not as vital as the truth.

National Prestige

Five, national prestige is earned the hard way. You can
just imagine the schadenfreude in Tokyo this week. China talked
big about how it was leaving Japan in the dust. Its train and
parts makers had been challenging Japanese and European
suppliers, touting experience gained from construction of
China’s domestic network. The crash near Wenzhou means their
chances of selling high-speed trains are near zero.
This problem harks back to recent safety scares involving
seafood, dumplings, eggs, milk, pet food, toothpaste, medicine
and toys. China needs to realize that in a world as competitive
as ours, the bar is high and it’s being raised with each passing
day. If you’re going to talk big, make sure your products really
are world class.
The same goes for your economy.

(William Pesek is a Bloomberg View columnist. The opinions
expressed are his own.)