Making tracks

China plans to lay 42,000km of rail track, much of it for high speed trains

Deng Xiaoping believed that China had one key advantage over Western democracies: “As long as something has been decided and a resolution has been made, it can be carried out immediately without any restrictions. Meanwhile the parliamentary democratic process is so complicated. Lots of going back and forth, only talking about it without doing it, concluding without executing. In this respect our efficiency is higher. We carry things out as soon as we have made up our mind.”

Trains seem a good example of Deng’s direct approach. Take Beijing’s subway, which is about to open its Line 4, linking the northwest of the city with the south. Beijing’s subway measured only 54 kilometres in 2001. It then quadrupled in size to 200km ahead of the Olympics. It is expected to reach 516 kilometres by 2015.

Over the next year Lines 4, 8 and 9 will be opened; and by 2015 the city aims to have 15 lines in total, carrying 10 million passengers a day – up from the current capacity of 4 million.

One of the men behind the subway expansion rather memorably told the Beijing Times that this feat could be put down to the fact that “those who know nothing, fear nothing.” In order to complete Line 9, for instance, the subway’s builders will tunnel under a lake, which will have to be temporarily drained. It’s the equivalent of pulling the plug on the Serpentine in London’s Hyde Park – except that would likely take about 35 years of public hearings and consultations.

But in Beijing the “efficiency” Deng cited as China’s comparative advantage still exists, and allows for fast tracking. Beijing will add 100km of new subway line in the next year. By comparison, Moscow and Singapore have been able to extend their subway networks by just 10km per year, says the China Daily.

Others are following the capital’s example: 19 other Chinese cities will lay 2,100km of subway track by 2015 – at a projected cost of Rmb800 billion ($117 billion).

As described in WiC1, the railway industry is benefiting from massive amounts of stimulus spending, with the deputy minister for railways, Lu Dengfu estimating that China will invest Rmb700 billion ($102.5 billion) on railway construction this year alone. Hong Kong listed China Railways is a major beneficiary, having netted Rmb146 billion worth of construction orders in the first five months of the year.

The highest profile train line is the new Beijing to Shanghai high speed railway. This will be the world’s longest high speed line and will reduce the travel time between the two cities to five hours. It is expected to carry 80 million passengers annually after 2011.

The route is also being used as an incubator for railway reform. Last week, the 21st CN Business Herald reported that the government is mulling a spin-off of both the existing line (and the high speed line) into a new listed vehicle.

The thinking is that the government can only finance so much of its colossal railway infrastructure spend – it plans to add 42,000km of track – and the capital markets may be necessary to fund the shortfall. The Beijing-Shanghai line is the perfect test case. The railway runs through a region generating 40% of the country’s GDP, and is likely to be one of the most profitable from an investor’s point of view.

“It is a major step forward in the reform of China’s rail system,” says Li Chao, a rail analyst with China Jianyin Investment Securities. “But it will certainly take some time for the plan to materialise and it is hard to predict how much capital can be raised.”

Of course, there is a certain irony to China’s current mania for railways – and likewise its hopes to list them. The nation’s first train line was opened in 1876 by Scottish trading firm, Jardine Matheson and financed through a stock listing. On that occasion the Chinese government declared the Shanghai-Woosung line illegal, tore it up and sent the scrap to rust in Taiwan.

“Thus perished the first railway ever to be built in China,” comments historian Robert Blake. Such scepticism about the benefits of trains has clearly passed.

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