An express engine for the economy or a fast track too far?
It’s one of the questions being raised this week, on news that the Chinese are moving quickly out of the slipstream of the Japanese (the Shinkansen bullet train) and the French (the TGV) to establish a high-speed rail infrastructure of their own.
The target is for trains that travel at speeds of 200km/h and more.
China expects to have as much as 18,000km of high-speed network by 2020, which would account for the majority of global capacity.
This makes most of the train talk rather triumphant in tone.
But the local airlines (and a few economists) are begging to differ.
What construction is going on?
The country’s first ‘wheeled’ high-speed service opened for business between Beijing and Tianjin last year, although a super fast Maglev track has linked Pudong airport with the city of Shanghai for five years.
High-speed track is now being laid in different locations across the country.
For the planners, the jewel in the crown is the Beijing to Shanghai express, which is scheduled to open in 2012 and cut travel time from 12 hours to four.
At more than $30 billion, it’s the single-most expensive national construction project since 1949, says the China Daily.
This investment is a boon for the economy at large?
Most think so. Firstly there’s the immediate boost to job creation and trickle-down spending.
Then there are the economic benefits to be enjoyed over the longer term. Commentators talk of an impact similar to the opening of the US interstate highways in the 1950s and 1960s. Or, much further back, to the opening of the first transcontinental railways in the 19th century.
The more immediate outcome is a reduction in journey times. Trips that once took 10 or 15 hours will pass by in less than half that.
The government expects this to improve flows of people and freight, helping with policy goals like the “opening up” of the poorer western provinces, and the narrowing of income disparities between inland and coastal regions.
Another goal is the formation of economic ‘clusters’ across neighbour cities or adjoining provinces.
Newsweek is already reporting that the entrepreneurial (but geographically isolated) city of Wenzhou has just been linked by high-speed rail to Ningbo (a major port) for the first time. Wenzhou is also enjoying speedier access to the neighbouring province of Fujian, a hub for Taiwanese investment.
Tianjin has benefitted too from its own high-speed link, with a surge in day-trippers from Beijing – now just a 30 minute ride away. Planners reckon domestic tourism and the retail sector could both be big beneficiaries of the new high speed routes.
So good news for everyone?
Not for the airlines, that’s for sure.
China Southern – the country’s largest carrier by passenger numbers – is already losing out in some of its head-to-heads with the new express trains.
Air passenger traffic between Beijing and Taiyuan in Shanxi province is down 60% since a fast rail alternative became available. There has been a 30% decline on Shanghai-Wuhan trips too. China Southern chairman Si Xianmin worries that his airline will end up competing with trains on as many as 38 routes.
Analysts agree that trips of 1,000km or less will be the core battlefield. Researchers at the Civil Aviation Administration even forecast that 90% of airline passengers on trips of less than two hours, and 50-70% of those on journeys under four hours, could soon be heading for the local train station rather than the airport.
That seems like a lot. But rail trips on competing journeys are already about 40% cheaper than air travel, warns the China Daily.
Train services are also a lot more convenient on some routes, with their downtown stations and less onerous security procedures. This takes a chunk out of the total journey time, even if the flight time component might be less.
It’s enough for China Southern’s Si to predict that he’ll be compelled to shift some of his fleet onto overseas routes, where he thinks he can still compete.
But fastest is not always fittest?
The airlines may lose out, but the trains will still boost the economy at large.
But high-speed does not always equate with high-efficiency. Take the Shanghai Transrapid, the $1.2 billion Maglev express line to Pudong international airport.
Definitions are important here (Maglev trains operate through magnetic levitation rather than on wheels). But the Transrapid already has rightful claim as the world’s quickest train. It even announces its top speed (430km/h) in-journey.
But the problem is that the express link doesn’t even reach the city centre proper (last stop the suburbs, then a switch to another line). At Rmb50 ($7.30) a trip it is also priced well beyond the means of many locals.
Few believe it can be generating ticket sales anywhere close to covering capital costs.
Money better spent elsewhere?
The hamstrung Transrapid is a case study for those who think that some of the investment in high-speed passenger transport could be better directed elsewhere.
One such critic is Michael Pettis, a professor at Peking University’s Guanghua School of Management, who argues that the returns of some of the rail projects may not justify the costs.
He claims further that the economic benefits for high-speed trains are actually much lower in China than in places like France. That’s because an hour saved of French time has far greater economic value than an equivalent hour in China (where incomes and productivity are much lower).
The counter argument (which seems reasonable enough) is that infrastructure investment enables future growth, and so shouldn’t be shaped purely by the existing state of economic affairs.
A further riposte (and more specific to the railway sector) is that switching passengers to faster tracks is going to free up desperately needed capacity for freight transportation, with associated economic benefits.
It’s a debate that will take twenty years or so to resolve.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.