In 2009, China’s first long-distance high-speed rail (HSR) service covered the 968 kilometres between Wuhan and Guangzhou at an average speed of around 350 kilometres per hour. In the decade that followed, China’s HSR network spanned over a track length of 38,000 kilometres, the highest in the world. With a share of 26 percent of the country’s total railway network, HSR today connects almost every major city in China.
In the mad rush to gain the rich economic dividends that the HSR delivered on several profitable lines, especially the Beijing-Shanghai and Beijing-Guangzhou lines, provincial governments across the country blindly emulated the feat. However, most of such provincial construction has ignored the low- to zero- potential of the expensive routes to attract similar volumes of passenger traffic and are running at high idle capacity.
Source:
https://www.businessinsider.com
Most new HSR lines in China have witnessed a sharp decline in their “transportation density”. Measured in passenger-kilometres, it is an indicator that projects the line’s operating efficiency in terms of annual average transport volume per kilometre. For example, while the 1,318-kilometre Beijing-Shanghai HSR corridor’s transportation density was 48 million passenger-kilometres in 2015 and continues to be high, the 1,776-kilometre Lanzhou-Urumqi line has only 2.3 million passenger-kilometres of transportation density. China’s overall transportation density of HSR was 17 million passenger-kilometres in 2015, while it was 34 million passenger-kilometres for Japan’s Shinkansen in the same year.
Most new HSR lines in China have witnessed a sharp decline in their “transportation density”. Measured in passenger-kilometres, it is an indicator that projects the line’s operating efficiency in terms of annual average transport volume per kilometre.
HSR construction costs nearly three times more than a conventional rail line. Given the absence of freight tariffs, its operational viability is hinged solely on passenger fares to cover the capital expenditure and operating costs. The demand for HSR has made China neglect the construction of conventional systems.
In the past few years, mega borrowings by provincial governments to monetise its HSR lines have created a debt trap, which is now pinching the coffers of the state-owned China Rail Corporation (CRC). CRC’s financial woes started nearly four years ago when more than 60 percent of the HSR operators each lost a minimum of US $100 million in 2018. The least profitable operator in Chengdu reported net loss of US $1.8 billion. In the same year, transport economists in China had predicted an impending debt crisis for the country’s HSR that was dependent on “unsustainable government subsidies with many lines incapable of repaying the interest on their debt, let alone principal”, and were caught in a vicious cycle of “raising new debt to pay off old debt”. Consequently, since 2015, CRC’s interest payments have been significantly higher than its operating profits, shrinking its bottom line.
Four years later, in March 2021, China’s State Council, the highest organ of state power, has waved a red flag to curtail investments in HSR to prevent the slide into a deepening debt trap. The new guidelines have stopped the construction of new HSR corridors, primarily on underutilised routes that are operating at less than 80 percent of prescribed capacity. For China, which has seen the length of its high-speed railway network increase by 91 percent between 2015 and 2020, the new guidelines indicate that the country’s pursuit for speed has come at a high price.
In September 2020, CRC’s quantum of debt rose to RMB 5.57 trillion (US $850 billion) – up from RMB 5.28 trillion as of September 2019, catapulting its debt-to-asset ratio to 65.8 percent.
The guidelines have asked governments to avoid blind competition, obsolete and redundant construction, and “improve the early-warning mechanism over railway-related debt.” It has suspended all construction in regions where the debt burden is high and surpasses its fiscal strength. Debt-ridden cities building underground or light railway systems too have been suspended.
Within just three days of the guidelines being released, Beijing stopped work on two HSR projects worth over RMB 130 billion (US $20 billion) in Shandong and Shaanxi provinces. Shandong’s 270-kilometre line had sought to connect its capital Jinan with its southern city of Zaozhuang. Shandong was also ordered to stop work on the RMB 71.6 billion Guanzhong Chengji project, which consists of 13 lines in Northwest China’s Shaanxi.
The financial burden and returns from a long gestation period project has to be viewed circumspectively. That requires some level of courage. The KL-Singapore HSR may make good sense, if assets are held by the government/s and operations are done by the private sector. Cost per kilometre and traffic density are two key issues to define viability of the project. This is also an opportune time to review and revive a project that will find its full fruition in the latter half of this decade, if debt is by way of long-dated papers (50 years or more) issued by the government/s.
Reference:
China’s high-speed railways plunge from high profits into a debt trap, Dhaval Desai,
(https://www.orfonline.org)
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