THE rapid modernisation and expansion of China’s infrastructure has helped propel the country through the economic rankings in the last decade. According to a report published by the McKinsey Global Institute in June 2016, China now spends more on infrastructure than North America and western Europe combined and the country has used spending on roads, railways and ports to help maintain economic growth following the global financial crisis.
China ramped up rail investment significantly in its 12th Five Year Plan, which covered the period from 2011 to 2015. According to figures from the State Council, fixed asset investment in the country’s railways reached Yuan 3.58 trillion ($US 520bn) over this period, up 47.3% from the 11th Five Year Plan, and the network grew by 30,500km. China opened 9531km of new lines in 2015, including around 3300 route-km of high-speed infrastructure. This took the network to around 121,000km, including 19,000km of high-speed lines.
During the period of the 13th Five Year Plan (2016-20), the average annual spend will fall but the level of rail investment will still be significantly higher than it was in 2006-10. Under the Medium and Long-Term Railway Network Plan approved by the State Council in June 2016, China intends to invest at least Yuan 2.8 trillion by 2020, expanding the network by a further 23,000km, with the high-speed network reaching 30,000km. With the government seeking to stimulate economic growth through infrastructure spending, the country’s top economic planner, the National Development and Reform Commission (NDRC), has approved a string of new rail projects in recent months (see panel), with more anticipated in early 2017.
China continues to develop rail links with its neighbours under president Xi Jinping’s One Belt, One Road initiative. Construction began last year on a 414km electrified standard-gauge line linking the southern Yunnan province with the Laotian capital Vientiane. Also in Yunnan, a new line is being constructed from Dali on Erhai Lake to the Myanmar border at Ruili.
While the emphasis remains on expansion, China’s railways face a number of challenges. A key question is whether China Railway Corporation (CRC) can sustain its massive and growing debt - according to figures from an auditor’s report, which were published by Chinese business publisher Caixin in September 2016, CRC’s debt rose by 9% in the first half of 2016 to Yuan 4.2 trillion. CRC’s debt-to-assets ratio dropped to 65%, with the value of its assets increasing 12% year-on-year to Yuan 6.5 trillion.
In a bid to boost revenues, CRC is taking a more market-orientated approach. The NDRC recently granted CRC a mandate to set fares for high-speed services to reflect “market competition and passenger distribution,”which should give CRC an opportunity to maximise revenues generated by the continued expansion of the high-speed network and strengthen its balance sheet. Previously the price of all high-speed fares was set by the commission itself.
The rapid expansion of the passenger network has fuelled a surge in ridership. According to the World Bank, passenger volume climbed sharply after 2003 from 456 billion to 807 billion passenger-km in 2014. In 2015 revenue from passenger operations overtook freight revenues for the first time and rose 14% year-on-year in the first half of 2016 to reach Yuan 135bn.
By contrast, CRC’s rail freight business has struggled due to the slowdown in economic growth, falling 13.7% in 2015 and a further 4.8% in the first three quarters of 2016. Freight revenues in the first half of 2016 fell 14.7% to Yuan 101bn. However, after 32 consecutive months of decline traffic began to recover in September, and volumes increased to 244 million tonnes in October, an 8.4% year-on-year rise.
The freight sector remains heavily reliant on low-value high-volume bulk commodities, and this could pose long-term challenges. China’s coal consumption peaked in 2014 and while coal volumes remain buoyant at present, the shift to renewable energy means this is likely to be a diminishing market for the railway. CRC is looking to develop its business in the high-value time-sensitive intermodal market, particularly in international services to Central Asia, Russia and Europe. Trials with a refrigerated container train carrying fruit and vegetables between Russia and China took place last summer, and tests are currently underway with a domestically-developed lorry-carrying piggyback wagon.
The longer-term prospects for rail infrastructure spending depend on whether China is willing or able to sustain fixed asset investment at current levels. In the wake of the global financial crisis, China has used infrastructure spending to maintain economic growth and compensate for the declining importance of low-cost exports.
However, the broad reliance on stimulus measures has left the country with debt equivalent to almost 250% of GDP. If the government is forced to confront a debt crisis in the coming years a slowdown in fixed asset investment could swiftly follow. Conversely, a cooling global economy might galvanise infrastructure spending as the government falls back on a tried-and-tested means of promoting growth. Either way, the political will to sustain the unprecedented boom in rail investment clearly remains strong.
Urban rail: heading towards 10,000km
CHINA’s economic transformation has been accompanied by rapid urbanisation. The percentage of the population living in cities climbed from 35.8% in 1990 to 55.6% in 2015. If current trends continue, China will have 221 cities with a population greater than 1 million by 2025, and the country’s urban population will reach 1 billion by 2030.
Meanwhile car ownership has soared, growing by around 19% a year over the last decade. Figures from the Ministry of Public Security showed there are 31 cars for every 100 households, and the proportion is closer to 60 for every 100 households in major cities like Shenzhen. Air pollution from road vehicles is a growing threat to health in many cities.
Urban rail has therefore become an important tool in keeping fast-growing cities mobile. According to the UBS 2016 China Rail Outlook report, annual investment in urban rail is forecast to average Yuan 701bn in 2016-2020, and the country’s tram and metro networks will reach 9400km by the end of this period. The rate of growth could accelerate if the government adopts proposals to reduce the population threshold for cities eligible for urban rail from 3 million to 1.5 million.
According to data from IRJpro.com, there were 3266km of new metro lines under construction or in commissioning at the beginning of December 2016 with work due to start on a further 552km this year.