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China’s Been Working on the Railroad

May 25, 2011

The following article of mine, an overview of some of the main issues surrounding China’s ambitious high-speed rail build-out, appeared in the latest (Spring 2011) issue of Global Infrastructure magazine:

China’s Been Working on the Railroad (All the Livelong Day)

By Patrick Chovanec

China has a dream. That dream involves crisscrossing the nation with the most modern, high-speed rail system in the world, capable of ferrying hundreds of millions of passengers at speeds of over 200 miles per hour—cutting the travel time from Beijing to Shanghai, for instance, from 10 hours to four.

It’s a dream that’s becoming reality at an astonishing pace. Over 5,000 km of new high-speed rail (HSR) lines came into service in 2010, for a total HSR network of over 8,000 km—the world’s longest. The plan is to have 13,000 km operational by the end of 2012 and 16,000 km by 2020, expanding China’s total rail network (HSR and conventional) by a third. To achieve this, China expects to invest more than $100 billion per year for the next several years, which is more than half of all railroad investment in the world.

The vision of an advanced China linked by ultrafast bullet trains looms large in domestic propaganda and in the image China is eager to promote to the rest of the world. Chinese officials boast of achieving “40 years of highspeed rail development in just five years.” But critics question whether such a rapid build-out is sustainable and worry that China’s fascination with HSR may divert funding and attention for less glamorous, but more essential, infrastructure needs.

The theory behind China’s HSR push is relatively straightforward. Currently, China’s conventional rail system is stretched to capacity carrying two kinds of cargo: people—namely, the more than 200 million migrant workers who regularly journey from their homes in the rural interior to jobs along the more prosperous coast—and coal. Because passengers take political priority, there isn’t much room left over for coal, most of which must be transported by truck—leading to monumental traffic jams like the infamous 10-day, 62-mile backup that took place outside Beijing last August—forcing many parts of China to import coal from abroad.

By shifting all of that passenger traffic onto “the fast track,” high-speed rail advocates argue China can open up capacity on its existing rail network to move not only more coal, but also other types of goods, thus relieving the road backups and boosting both productivity and regional development. According to planners at China’s Ministry of Railways (MOR), a two-track HSR line can carry 160 million people per year, which is twice as much passenger traffic as a four lane highway.

The question, though, is at what cost? High-speed rail is expensive both to build and operate, requiring high ticket prices to break even. Typical HSR tickets in China cost five or six times what passengers are used to paying for regular trains and on long-distance routes can approach the price of an air ticket. For affluent tourists or business travelers who value their time, that might make sense. But the bulk of China’s passenger traffic—especially during peak holiday periods—consists of low-income migrants. Even if they could afford HSR ticket prices—which is doubtful—they might prefer to save money by sticking with a slower, cheaper option. If that proves to be the case, faster rail lines will run empty at a loss, while providing little or no relief to the existing transportation network.

That seemed to be precisely the situation that unfolded this Chinese New Year (the country’s peak travel season), according to China’s own transport officials. A spokesman for the Ministry of Transport told China Daily that “this year the situation [rising ticket prices for faster trains] had pushed many passengers, who used to ride home by slow trains because of cheap tickets, onto long-distance buses,” adding pressure to the system. Long-distance bus traffic over Chinese New Year, the article noted, was expected to increase nearly 12% from the same period last year, requiring 70,000 more buses on the roads.

Rather than capturing lower-end traffic from slower trains and buses, it appears the new high-speed lines are drawing higher-end traffic away from China’s airlines. Wang Changshun, deputy head of the Civil Aviation Administration of China, told a conference in January 2011 that the arrival of HSR had forced some airlines to cancel short-distance flights along the same routes. Since the opening of an HSR line in December 2009, for instance, the number of flights between Guangzhou and Changsha has been cut from 11.5 flights a day to just three, with two out of three airlines withdrawing from the market entirely. The ticket price for the remaining flights has dropped by 15%, but the number of passengers has still gone down by 48%. Wang expects that “The opening of the Beijing-Shanghai high-speed line next year will be another blow to the air transport industry.”

It may be that China’s airlines could use a bit of competition, but that certainly wasn’t the idea behind the high-speed rail build-out. The intent was to relieve the congestion of China’s existing rail system, thereby opening up lower-end capacity to handle more freight and relieving stress on roads. It was supposed to bump passengers upmarket (from slow trains to fast trains), not down-market (from slow trains to buses and from planes to fast trains).

High-speed rail proponents argue that such problems are only temporary. As Chinese incomes continue to rise, they contend, more people will find HSR affordable, and China will consider itself fortunate that it built such an advanced system when it had the chance.

Critics, however, worry that the new rail system may go bankrupt before it has the chance to realize its potential. The portion of China’s railway investment funded by debt has increased from 50% in 2005 to 70%, and now accounts for 10% of all outstanding debt in China. Analysts estimate that MOR will rack up over $600 billion in borrowing by 2020. China’s high-speed rail lines will have to perform very well financially— sooner, not just later—to support this debt burden. A default, even if averted through a government bailout, could seriously impact China’s financial system.

In the meantime, critics contend that the glamour of high-speed rail diverts money and attention from far more productive investments in China’s transportation infrastructure. China’s high-profile HSR push is often contrasted in the media with the dismal state of America’s passenger rail system. In fact, some critics argue that China could learn a lesson from the United States, whose intermodal freight rail system—although largely underappreciated—is probably the best in the world, seamlessly moving containerized cargo thousands of miles inland from port to depot to factory and back again.

Rather than building high-speed rail lines to move millions of people around more quickly, China would be better off developing a rail system that moves goods more efficiently and makes people more productive where they already are. To be fair, Chinese planners have given the idea some thought. In 2006, MOR announced plans to construct 18 major container depots across China, but that effort has attracted noticeably less attention and energy than its glitzy HSR plans.

It’s worth remembering, though, that Chinese officials see HSR as a means as well as an end. It’s no coincidence that China’s HSR push has accelerated dramatically as part of its stimulus in response to the global financial crisis. Major infrastructure projects have been instrumental in boosting GDP and employment at a time when China’s primary driver of growth—exports— was in steep decline. The $33 billion Beijing-Shanghai HSR line, which surpasses the Three Gorges Dam as the most expensive project in China’s history, employs 127,000 workers. HSR has proven so useful in hitting economic targets that local officials have asked MOR to expand the network another 80%, above and beyond its already ambitious plan.

More senior officials also see China’s HSR construction boom as a way to build up China’s dominance in the global market for transportation equipment and systems. Domestic, state-owned manufacturers of locomotives and railcars are using the booming market to achieve new economies of scale. Foreign suppliers —Germany’s Siemens, Canada’s Bombardier, France’s Alstrom and Japan’s Kawasaki, among others— are also positioned to make millions in profits, but only in exchange for transferring key technologies to their Chinese “partners.” These global industry leaders face an unenviable choice: forego the fastest growing market for their products or risk creating voracious new competitors. Already, the Chinese, who little more than a decade ago were still making steam engines, are exporting integrated railway systems to Africa, Southeast Asia and the Middle East. Last year, Beijing even teamed up with General Electric to pitch bullet trains to the state of California.

China’s high-speed rail ambitions have captured the world’s attention—and its imagination. What remains to be seen is whether, and in what manner, China can capture a return on its investment.

6 Comments leave one →
  1. wingedream permalink
    May 25, 2011 2:29 pm

    very comprehensive and holistic picture of the new Chinese High speed rail project.We are waiting to get on board for sure…Bon Voyage!!!!!

  2. Jess permalink
    May 26, 2011 4:03 am

    Just as a side note, how do you pronounce the “live” in livelong?

    • prchovanec permalink*
      June 13, 2011 9:03 pm

      As in “I live on the other side of the street.” The title comes from the lyrics of a traditional American folk song called “I’ve been workin’ on the railroad.”

  3. May 31, 2011 8:47 am

    While I think there are several HSR routes that make sense over short distances, it does seem redundant on longer routes.
    Thank you for your continuing coverage of the HSR that seems to be a bad investment, and a symbol of China’s hubris.

  4. June 8, 2011 3:39 pm

    Insightful post, thanks for that!
    Not sure I go along with your assessment of high speed rail versus air travel. Air travel is not a particularly desirable mode of transport. It’s rather wasteful with energy and resources, noisy, requires considerable infrastructure, needs to connect with other modes of ground transport (to and from the airport), creates CO2 emissions and so forth. Sure there are distances which can only be traveled by air, but as a rule of thumb, if it can be replaced by speedy ground travel, that is to be preferred.
    So in most countries, HSR is built explicitly to complement or replace air travel – the litmus test of a new connection being whether it can actually “eat away” from air traffic. So while the immediate goal of HSR in China may be different, I’d still say it’s great news that the new connections draw passengers away from the airlines. It shows the connections are competitive and attractive. And yes, the bottom-up demand from slower trains will of course rise in the future; simply as a function of higher income and therefore higher opportunity costs for travellers. When I took a CRH train from Beijing to Chengdu earlier in the year, it was full of young middle class travellers. Count on having much more of those folk in the future.

    I’d venture that China is currently in a narrow window of time where huge-scale projects such as this 1) can technologically be pulled off and 2) are still feasible and affordable. Seeing that in developed countries, we aren’t really moving forward with HSR due to huge development costs, NIMBYs, political quarrels etc., I’d say that China will be blessed with every kilometer high-speed track that they build sooner rather than later.

  5. george caldwell permalink
    July 1, 2011 4:01 pm

    When will China Rail come to Singapore?

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