China on High Speed

By: Buyi Wang

China has gained tremendously by the high-speed railway, but is it time to stop building and exporting more.

Mr Huang was born in a small town in the Northwest of China. During Lunar New Year, he would take a 21-hour-long train ride from Beijing, the city he now works in, back to his hometown. For the past 22 years, the train is Mr Huang’s only means to return home, a place not developed enough to have an airport and too time-consuming to be reached by the highway. Fortunately for him, this year a bullet train station was opened, reducing his travel time to only 6 hours.

“Less than a decade ago China had yet to connect any of its cities by bullet train. Today, it has 20,000km (12,500 miles) of high-speed rail lines, more than the rest of the world combined”¹. The World Bank points out that in China, the cost of building high-speed railways is “one third lower than in other countries”². The resulting widespread construction of such high-speed transportation has brought extensive economic benefits throughout the country. Small towns that were once isolated are now seeing potential investors and residents pouring in. Big cities that were once dense are now witnessing satellite towns springing up and sprawling development. Not to mention that the Beijing to Shanghai line has become the world’s most profitable railway, attracting “a net profit of 6.6 billion yuan ($982 million)”³. From an international perspective, China has also been exporting its high-speed railway technology. For instance, now in Turkey, there’s a Chinese bullet train running between Istanbul and Ankara. In the future, chinese bullet trains are also expected in Los Angeles, Jakarta, Belgrade and more.

China’s newest high-speed transportation system has brought forth many sweeping benefits, but that is not to say that it does not have its share of problems. The low cost of building the railways is achieved through an unhealthy amount of debt financing. The railway company, China Railway Corporation, is owned and operated by the state. This means that it has access to credit with a pre-existing heavy debt burden. It’s stated that the Chinese railway giant “has debts of rmb 3.8tn ($558bn), much more than the national debt of Greece”⁴_. Meanwhile, the company also has an administrative role to play: to invest unconditionally in China’s railway project according to the government’s plan. Moral hazard in mind and administrative responsibilities have led the company to keep on building, even though some lines are experiencing huge losses. “ A state-run magazine said the line between Guangzhou and the province of Guizhou owes 3bn yuan per year in interest payments—three times more than it makes from ticket sales”⁵. If the nature of the railway company is the deeper reason for these lines’ failure, there are also some more superficial reasons. Firstly, not every city in China has a big market demand for the bullet train, especially further inland. Those cities are relatively poor compared to the rest of the country, which means people there might not be able to even afford a bullet train ticket. Furthermore, some bullet train stations are located too far away from the central business areas. For instance, in Xiaogan, located in the Hubei Province_,the bullet train station is “100 km from the city”⁶.

China’s export of its high-speed railway has begun to be problematic in many ways as well. Construction costs are higher and projects riskier due to the varying socioeconomic conditions in the countries that China exports its technology to. Indonesia is one such an example: it might not have a high enough population density to ensure a profit for the bullet train. Moreover, some of these countries have very limited and even mountainous topography, making the railway more expensive to build. Furthermore, the railway company might need to buy the land themselves, whereas the government typically owns the land in China. It has been observed that the failure to buy up the land for the construction has substantially delayed the building of the Jakarta line. Regardless of these other factors, the point stands that few countries have the money and labor to build such infrastructure.

Among the issues related to the Chinese bullet train, the most important one to tackle is the unhealthy debt financing, caused partly by strong government support and control. There’s no need to say that the industry should embrace the free market more. The good new is that measures are on the way. Recently, the railway giant is encouraged by the government to set the price of train ticket according to “market competition and passenger distribution”⁷. The price was previously decided by the government’s economic planning agency. People have also suggested a break-up of the giant into several regional companies. These suggestions are beneficial, but not enough. The government should encourage more private firms to join the bullet train project. Meanwhile, the government should also encourage private firms to buy debts of Chinese Railway Corporation. By allowing these two things to happen, the free market participates in the problem-solving process.With respect to the export of the technology, China should first analyse the circumstances of the other country. If the other country doesn’t have the financial strength or a market large enough for bullet trains, then China should be cautious about exporting.

In conclusion, the bullet train does China good by promoting regional development. Nevertheless, the railway company needs to revolutionize itself by depending less on the government. Moreover, China shall not blindly export the bullet train to whichever a country it desires. Without considering the other side’s ability to burden the cost, the effort to export would not be successful. Even worse, it might bring bad reputation to China’s project abroad.

Works Cited