China’s High-Speed Rail Dilemma

I want to elaborate, just a bit, on the point I made in my latest China Economic Review column about China’s high-speed rail investment, since it had to be cut short there due to space restrictions.

Currently, China’s conventional rail system is stretched to capacity carrying two commodities: coal and people. And as Damien Ma, an analyst at the Eurasia Group, notes in a post today at The Atlantic, passengers takes politically priority over coal, requiring much of the nation’s coal to be transported by truck, leading to monumental traffic jams on China’s roads (including the famous 10-day, 62-mile backup outside of Beijing last August, which attracted worldwide attention and mainly consisted of coal trucks).

The theory is that building a national high-speed rail network will put all that passenger traffic on “the fast track,” as it were, and open up capacity on the existing rail network to move not only more coal but also other types of goods, thus relieving the road backups and boosting both productivity and regional development.

The problem is that high-speed rail is expensive both to build and to operate, requiring high ticket prices to break even. The bulk of the long-distance passenger traffic, especially during the peak holiday periods, is migrant workers for whom the opportunity cost of time is relatively low. Even if they could afford a high-speed train ticket — which is doubtful given their limited incomes — they would probably prefer to conserve their cash and take a slower, cheaper train. If that proves true, the new high-speed lines will only incur losses while providing little or no relief to the existing transportation network.

Unfortunately, that seems to be precisely the situation that’s shaping up this Chinese New Year (the year’s peak travel season), according to an article in this Wednesday’s China Daily. The article reports that

Some 5,149km of high-speed track were put into service last year, making the network stretch to 8,358km, the world’s longest … But the opening of more fast train services has led to fewer regular trains being available for budget-conscious passengers.

China Daily notes that a new luxury sleeper service between Shanghai and Chengdu costs an astonishing US$352 (easily comparable — and possibly more expensive than — an air ticket).

But many travelers cannot afford the tickets, causing a waste of transport capacity.

Instead of buying expensive high-speed rail tickets, migrants are instead opting to take the bus:

[An official spokesman for the Ministry of Transportation] said this year the situation had pushed many passengers, who used to ride home by slow trains because of the cheap tickets, onto long-distance buses. This extra traffic will add pressure to the road transport system during the travel peak season, [he] said.

Long-distance bus traffic over Chinese New Year, the article notes, is expected to increase nearly 12% from the same period last year, requiring 70,000 more buses on the roads.

Rather than capturing lower-end traffic from slower trains and buses, it appears the new high-speed lines are drawing higher-end traffic away from China’s airlines:

Wang Changshun, deputy head of the Civil Aviation Administration of China, told a conference on Tuesday that the fast trains have forced some airlines to cancel short-distance flights along high-speed rail lines. For example, the Wuhan-Guangzhou high-speed railway, where every few minutes trains zip between the two cities via Changsha … has carried 20.6 million passengers since its opening in December 2009. During that period the number of flights between Changsha and Guangzhou has been cut from an average of 11.5 flights a day to three flights a day, he said. Hainan and Shenzhen airlines decided to withdraw from the market, leaving only China Southern Airlines carrying the three daily flights … The ticket price for those flights also dropped by 15 percent … but still the number of passengers … dropped by 48 percent. “The opening of the Beijing-Shanghai high-speed line next year will be another blow to the air transport industry,” Wang said.

It may be that China’s airlines could use a bit of competition, but that certainly wasn’t the intent behind the high-speed rail build-out. The intent was to relieve the congestion of China’s existing rail system, thereby opening up lower-end capacity to handle more freight, and relieving stress on roads. It was supposed to bump passengers up-market (from slow trains to fast trains) not down-market (from slow trains to buses, from planes to fast trains).

The argument I make — in abbreviated form — in my CER article is that rather than trying to divert passenger traffic to high-speed rail, China should focus on the (far less glamorous) task of improving and expanding its intermodal freight system — using the U.S., in part at least, as a model. That involves not just laying more conventional track, but also building the support infrastructure to make more efficient use of that track, especially in China’s underpenetrated interior. As I point out in my article:

Inland Chinese cities like Chengdu or Lanzhou are really no more remote from global markets than Chicago or Denver; the difference is a robust and efficient logistics network. With container terminals, rail yards, and modern storage facilities in place, more industries would find it plausible to locate in China’s interior, alleviating the need for workers to travel so far from home to find a job.

The next line I wrote cuts to the core difference between the two approaches:

Rather than moving people more quickly, [China] should build a rail system that moves goods and makes people more productive where they already are.

To be fair, China is making some effort in this direction, but it has taken a back seat to the glitzy all-out push for high-speed rail.

[Some readers might wonder what knowledge or experience I have that would enable me to offer an informed opinion on this subject, and that’s a fair question. It just happens that, for nine years, I served as a transportation and logistics officer in the U.S. Army Reserves. I received training in the design and operation of road, rail, water, and air transportation systems, served with a terminal operations unit, and was in charge of running both ports and railheads. I also worked a couple of years, early in my career, coordinating intermodal freight movements for an ocean shipping line, from port to customer and back again. By no means do I hold myself out as an expert on transportation, but I am familiar enough with the issues to see some real problems emerging here.]