Commentary on Political Economy

Tuesday 18 August 2020

RATLAND'S BRIDGES TO NOWHERE

 

China Doesn't Need 125,000 Miles of Track

For all the patriotism that comes with ambitions to build more high-speed rail, it's a bad idea.

Corrected 
China already has a head start.
China already has a head start. Photographer: Giulia Marchi/Bloomberg

The building of China’s high-speed rail network counts as one of the greatest transportation success stories so far this century. That doesn’t mean the country can repeat the trick.

When plans for a nationwide network of trains traveling at up to 350 kilometers per hour (220 miles per hour) were first hatched in 2004, it was thought such projects could only be viable in rich countries. Beijing’s economic planners proved those naysayers wrong. Now, two-thirds of the world’s high-speed rail is in China and passengers take 3.7 billion rides every year, more than half of that number on high-speed trains.

Build It, And They Will Come

China has gone from zero to 36,000 kms of high-speed rail in just over a decade

Source: National Bureau of Statistics of China, China Daily

Those achievements look modest next to what’s planned for the coming decades. China State Railway Group Co. put out the sequel to the 2004 plan last week, promising a network 200,000 kilometers (125,000 miles) long by 2035, up from 141,000 kilometers now. High-speed tracks will comprise 70,000 kilometers of the total — roughly double their current length. 

For all the nation-building pride that can attach to such ambitions, it's a bad idea.

China’s high-speed rail network is already bigger than it ought to be. The entire route from Beijing in the north to Guangzhou in the south is barely more than 2,000 kilometers. A 70,000-kilometer network would have to extend deep into the backwoods, to cities like Kashgar in Xinjiang and Shigatse in Tibet. Already, too much spending has gone on serving areas where the population is too small and low-income to make high-speed rail viable. Further extending train lines to yet smaller cities will make that problem worse.

High-speed and conventional rail has impressive potential to reduce the quarter of global emissions that come from transportation. Although faster trains are significantly less efficient, overall emissions per passenger, per kilometer on the rails are about one-tenth of what they are from flying. Even so, across the world, high-speed rail normally depends on a combination of four factors to stack up financially: high population density; strong state backing; intercity distances of less than about 1,000 kilometers; and high incomes.

Faster Is Better

Only one in six of China's high-speed rail lines are able to cover their operating and debt costs

Source: World Bank

China scores on the first two points but the latter two are shakier, especially as you move away from the affluent coastal provinces. A World Bank study last year found that only five out of the 15 fastest 350kmh lines cover their operating and capital costs, while six are unable to pay the interest on their loans. The situation is worse for the 250kmh lines that make up the bulk of high-speed traffic: Just five of 16 lines were able to cover their operating and maintenance costs, and none had the profits to pay back interest, let alone debt principal.

Thanks to the drag on operating profits and the debt burden from the slower lines, China State Railway is barely making money as it is, and was carrying about 5.28 trillion yuan ($760 billion) of debts last year. At typical construction costs of roughly $20 million per kilometer, building out the high-speed network as envisaged will nearly double that debt load.

The new routes will have even less traffic and revenue than the priority lines that have already been constructed. The build cost, though — not to mention the substantial emissions from concrete and steel building materials — will be little different than what’s seen on the busier, profitable lines connecting the likes of Beijing and Shanghai.

Train in Vain

Even coronavirus has only taken China's trailing 12-month rail passenger numbers back to 2016 levels

Source: National Bureau of Statistics of China, Bloomberg

A better approach would be for the country to link its transport planning to the ways it needs to reform freedom of movement as a whole. The hukou household registration system, which prevents rural migrants from using big cities’ sought-after government services such as state schools, is only tentatively being reformed. Restrictions will be loosened for cities with less than five million people, but the 13 major centers with the most dynamic economies will remain largely closed.

That will ensure the population is more thinly spread across a larger number of sub-scale cities, weakening the productivity benefits that would accrue from more aggressive urbanization. It will also guarantee that more travel happens on low-density, low-patronage lines. Offsetting the roughly one billion metric tons of emissions that will be involved in building out the network to 70,000 kilometers will only happen to the extent that trains displace planes and road vehicles — and that process, too, is likely to be slower on lower-density lines.

At this point further development isn’t being driven by passenger demand or climate goals, but Beijing’s addiction to using carbon-intensive infrastructure to stimulate a rapidly slowing economy. Countries like the U.S. and U.K. that have shown a chronic inability to get high-speed rail built have much to learn from China’s ambition and execution — but China could learn from the more cautious approach to megaprojects seen elsewhere. Further building out the network at this point will prove a costly boondoggle.

(Corrects the time period for the release of the rail plan in the third paragraph.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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