Rail & Infrastructure

No fly zone

Will Beijing to Shanghai bullet train be world’s busiest railway?

No fly zone

It took a day and a half to get to Beijing from Shanghai by train when Mao first took power in 1949. A new high-speed rail line opening today can do the trip in under five hours. It’s a highly symbolic moment for the country’s leaders. After all, less than a century ago the Qing dynasty was undone in part because it lacked railways. That left the civil service unable to transport grain in times of famine or troops during successive European and Japanese invasions.

By the time Qing officials (belatedly) tried to construct a rail network it was already too late. The treasury had been depleted and it was dependant on punitive loans from Western investors to get the job done. In the end, most of the state’s income had been pledged to pay for the dubious privilege of a railway entirely in foreign hands – helping to spark the Boxer Rebellion.

China’s new leaders were determined to learn their lesson – and even now the Railway Ministry has plans to spend over $430 billion over the next five years laying new track (of both the ordinary and high-speed varieties). Unlike the pre-1911 era, this time the money is mainly coming from inside China.

But if the landmark Beijing-Shanghai route illustrates the scale of government’s rail ambitions, it also highlights some serious difficulties standing in the way of achieving them. One of the most glaring problems is its cost. The Beijing-Shanghai line reportedly had a price tag of around $34 billion, more than four times its original 1994 budget. “Today the material and labour prices are rising,” an insider explained to 21CN Business Herald, “and along with additional engineering changes the costs are much higher than the original design.”

Modifications to the original plan were extensive. The over-pumping of groundwater in the north China plain has caused land to subside as the water table falls (a problem WiC highlighted in issue 59). Planners had to shift to a more expensive ‘viaduct’ system (laying track on a raised platform) to reduce some of the risk. “[The] extraction of underground water [near] the Beijing-Shanghai high-speed railway must be prohibited and should be written into law,” railway official Wu Kejian warned reporters.

But rising land value along the railway line is thought to be the most significant reason for the cost overruns. “In the 1990s land cost around Rmb6,000 per mu (1/15 of a hectare),” explains 21CN, “but now land in the busiest section costs as much as several hundred thousand a mu.” It doesn’t help that the Railway Ministry remains mired in allegations of corruption. Three more officials were reportedly put under investigation in recent days (former rail minister Liu Zhijun was arrested in February, having taken Rmb1 billion of bribes, reported Southern Metropolis Daily). Substandard steel was used in safety-barriers along the Nanjing-Hangzhou high-speed line, according to a Jinling Evening News exposé earlier this month.

A good chunk of railway costs have had to be paid by cash-strapped local governments – already deep in debt to state-banks. And the Beijing-Shanghai High Speed Rail Corporation hasn’t fared much better. At least two sound-barrier manufacturers have reportedly resorted to protesting at the corporation’s Beijing headquarters to push for payment of the Rmb3 billion they claim they’re owed.

The hope is that fares will eventually be able to meet the interest and principal on the debt. But at $85 for the cheapest ticket between Beijing and Shanghai ( about 9% of the average urbanite’s monthly disposable income, calculates Wall Street Journal), they are already more than many Chinese can afford. A price war also appears to be in the offing, with the airlines on the same route reportedly cutting fares over 40% to $72. The Ministry of Railways admitted this week that the line won’t break-even “in the short term”.

Property sales could be one solution (for more on this, see the next article). And unlike 100 years ago, today’s rail debts are at least in the local currency – and don’t threaten to bankrupt the state.

© 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.