CHANGSHA, China - Even as China prepares to open bullet train service from Beijing to Shanghai by July 1, this nation's steadily expanding high-speed rail network is being pilloried on a scale rare among Chinese citizens and news media.

Complaints include the system's high costs and pricey fares, the quality of construction and the allegation of self-dealing by a rail minister who was fired earlier this year on corruption grounds.

But often overlooked, amid all the controversy, are the very real economic benefits that the world's most advanced fast rail system is bringing to China - and the competitive challenges it poses for the United States and Europe.

Just as building the interstate highway system a half-century ago made modern, national commerce more feasible in the United States, China's ambitious rail rollout is helping integrate the economy of this sprawling, populous nation - though on a much faster construction timetable and at significantly higher travel speeds than anything envisioned by the Eisenhower administration.

Work crews of as many as 100,000 people per line have built about half of the 10,000-mile network in just six years, in many cases ahead of schedule - including the Beijing-to-Shanghai line that was not originally expected to open until next year. The entire system is on course to be completed by 2020.

For the United States and Europe, the implications go beyond marveling at the pace of Communist-style civil engineering. China's manufacturing might and global export machine are likely to grow more powerful as 200-mile-an-hour trains link cities and provinces that were previously as much as 24 hours by road or rail from the entrepreneurial seacoast.

David Fuller's view iven China's size and now its economic might, almost everything it does generates controversy. Some see a runaway building boom, serial bubbles and an economy about to go off the rails. Others see it as the most miraculous economic transformation in history and confirmation of China's burgeoning superpower status.

Of course there will be bubbles, misallocation of funds, corruption and inequities, but these are certainly not unique to China. In fact, we can identify them in many countries today and throughout their history. However in terms of relative performance - a subject of importance to every investor - China's economy is setting the pace in an increasing number of industries, from bullet trains to the development of green energy technology.

Needless to say, this is not currently reflected in China's stock market performance (weekly & daily), mainly due to the initial problem of supply and subsequently, monetary tightening. These are only medium-term problems, and valuations have improved during this market lull.

Today, China's equity indices look oversold and the Shanghai A-Shares Index shown above had its first upward dynamic since the January to April rally. However, it will require a break in the progression of lower rally highs shown on the weekly chart to confirm eventually that demand has regained the upper hand.

The key to a significant improvement in performance, I believe, will be a shift in monetary policy to at least a neutral stance. Some China analysts think this could occur within the next month or two. We will see. Meanwhile, supply is no longer a problem.

For some interesting historic perspective on railroads, the Deutsche Bank report: Is Outsourcing History?, posted below by Eoin, details railroad development in the USA in the 19th Century. I summarise:

In 1830, the USA had 40 miles of railroad. This grew to 28,920 miles by 1890 and 163,592 miles by 1890. It opened up the West and enabled goods to be moved from one end of the country to another. The energy and vision to build these railroads were essential to America's economic success.

The Chinese certainly know this; workers imported from China laid a significant amount of the USA's railroad tracks.