Japan Offers California Loan for $40 Billion High-Speed Train

California Governor Arnold Schwarzenegger rode one of Japan’s fastest trains today after the nation’s transport minister offered loans to support the state’s more than $40 billion high-speed rail project.

“I am very impressed with the technology and also with the infrastructure itself,” Schwarzenegger said in Omiya, Japan, a 25-minute journey from Tokyo Station. East Japan Railway Co.’s “Hayabusa” bullet train accelerated to 110 kph (68 mph), short of its 224 mph maximum, with the governor aboard.

Schwarzenegger visited Tokyo as part of an Asian tour as he looks for contractors and funds to help with a high-speed rail network that will include a route between Los Angeles and San Francisco. Japan is offering a loan to California, which faces a $19.1 billion deficit, to help companies including East Japan Railway compete with Chinese, South Korean and European rivals.

“Japan’s strength lies not only in being able to provide finance but also in the quality of the product,” said Ryota Himeno, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. “China and South Korea lag behind in terms of operating experience.”

The state-owned Japan Bank for International Cooperation is prepared to lend funds for California’s rail project, Transport Minister Seiji Maehara told reporters late yesterday in Tokyo. He declined to comment on the amount of the possible loan.

‘Genius Mind’

Schwarzenegger rode on a Chinese high-speed train on Sept. 12 and is planning a similar trip in South Korea. California has encouraged Asian companies including East Japan Railway, China South Locomotive & Rolling Stock Corp. and Hyundai Rotem Co. to bid on its rail project.

“Japan has a genius mind,” Schwarzenegger said earlier today at a breakfast event in Tokyo held by the American Chamber of Commerce in Japan. “California wants to have that kind of mind and technology to build our high-speed train.”

The state is also encouraging bids on the project from France and Germany.

California’s planned network would whisk travelers between Los Angeles and San Francisco in 2 hours and 38 minutes. The journey takes six to eight hours by car or one hour by plane.

Maehara said yesterday he may go to the U.S. next year to help promote sales of Japanese bullet trains. He’s visited the country twice this year after President Barack Obama awarded $8 billion of federal funds to help support high-speed rail projects nationwide.

‘Strengthen Ties’

Japan earlier this year made it possible for JBIC to provide financing for U.S. high-speed train lines to help the sales push.

“They have to get money from some place,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $3 billion in assets. “Japanese trains are going to cost more, but they’re going to last.”

Schwarzenegger also met with Japan Prime Minister Naoto Kan, Maehara said, without elaborating.

“By exporting Japanese technology we can strengthen ties with another country and help Japanese companies,” Maehara said.

California won $2.3 billion of federal funds to help build the high-speed train network, the biggest award in Obama’s funding program. The state also approved in 2008 a $10 billion bond sale to help pay for the line, which is scheduled to start services in 2020.

‘Significant Delays’

California’s state auditor has said the business plan for the rail network doesn’t include steps to replace all of the $17 billion to $19 billion in federal funds initially envisioned for the system.

“The program risks significant delays without more well- developed plans for obtaining or replacing federal funds,” the April 2010 report by State Auditor Elaine Howle said.

California expects bids from about 10 trainmakers for the project, and construction may start as early as the first half of 2012, the California High Speed Rail Authority said earlier this year. The railroad would eventually be extended to San Diego.

China’s Ministry of Rail yesterday signed a memorandum of understanding with the Bay Area Council, an advocacy group for businesses in the San Francisco region, to help it find partners in California for a bid on high-speed rail work, John Grubb, the council’s vice president for external affairs, said in an e-mail today. While the agreement isn’t exclusive, China is the only country and potential bidder that has asked, Grubb said.

The council’s agreement with the rail ministry was reported earlier in the China Daily.

U.S. Transport Secretary Ray LaHood visited Japan earlier this year and took a ride on a JR East bullet train.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net

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