China's High Speed Trains Make Money
China’s High Speed Trains Make Money
Bullet trains on popular routes are pulling in passengers, encouraging the Ministry of Railways to expand. Caixin
(Beijing) – Four of the nation’s 14 high-speed rail lines have financially broken even since bullet trains started full-speed, intercity service in China two years ago, giving impetus to a Ministry of Railways expansion.
Passenger ticket revenues have so far matched expenses – including debt payments – for the busy Beijing-Tianjin, Shanghai-Nanjing, Beijing-Shanghai and Shanghai-Hangzhou lines, a source at the National Development and Reform Commission (NDRC) told Caixin.
Moreover, the financial health of the Beijing-Shanghai line exceeded expectations during its first operating year, which ended in June, sources told Caixin.
The ministry has declined to release financial data but said trains whisked 52.6 million passengers between the two cities during the 12-month period. Ticket sales on the line brought in 1.86 billion yuan in July 2011, Caixin learned from other sources, and about 7 billion yuan between June 2011 and January.
This and other noteworthy financial data reflects the popularity of fast-rail tripping in relatively wealthy eastern China, where some people now choose bullet trains over airliners and business travelers abound.
Passenger cars on bullet trains in other parts of the country, such those traveling the Zhengzhou-Xi’an line, are emptier and apparently underperforming financially. Some may be losing significant sums of money.
Only about a dozen trains a day travel the Zhengzhou-Xi’an high-speed railway, for example, compared to 65 fast trains a day running between Beijing and Shanghai. A lighter schedule on a given line means less revenue for servicing debt.
But the rail system overall seems to be recovering from a July 23, 2011, collision of two bullet trains near Wenzhou that killed 40, and its disgrace over the ouster of Liu Zhijun as railways minister – and godfather of the fast-rail building boom – earlier that year on corruption charges.
Those incidents, coupled with close government and public scrutiny of the Liu administration’s huge, debt-fueled investment in new construction, last year preceded a significant slowdown for construction and new projects by the rail ministry, which builds and operates China’s sprawling railroad network.
A ministry subsidiary operating as the builder-owner of the Beijing-Shanghai railroad system – the Beijing-Shanghai High-Speed Railway Co. Ltd. – lost 800 million yuan during the first three months of bullet train runs before its financial picture improved, a source said. The loss was based on 3.5 billion yuan in revenues against 4.3 billion yuan in expenditures.
The company borrowed from banks for about half of the nearly 221 billion yuan spent to build the railroad. Lenders agreed to charge no interest for the first five years of each 20-year loan, a source said, saving the company about 5 billion yuan.
Following an operations model crafted for high-speed lines nationwide, the builder-owner is working with Beijing, Tianjin and Shanghai regional railway bureaus, which function under the rail ministry, to provide operating staff, scheduling and other services. Equipment including trains are owned by regional railway bureaus.Formal contracts between the bureaus and the Beijing-Shanghai company have yet to be signed, however, reportedly due to pricing disputes.
The estimated 40 million people who rode trains during the bullet system’s first six months paid a combined 7 billion yuan for tickets – an amount pointing to good potential for future profits. Altogether, passenger railcars were 72 percent full.
“If revenues on this line in the first year can reach 14 billion yuan,” said a source close to the rail ministry, “and passenger flow can maintain stable growth for the next few years, it can theoretically make a profit.”
Indeed, officials are betting on decent profits in the future based on a forecast that passenger ridership will increase an average 10 percent annually.
Even healthier than the Beijing-Shanghai line is the fast train system linking Shanghai and Nanjing. The builder-owner Shanghai-Nanjing Inter-city Railways Co. Ltd., which launched its first train in July 2010, posted a 380 million yuan net profit on revenues of 3.57 billion yuan last year.
But the Zhengzhou-Xi’an line, which also opened in 2010, has been struggling due to relatively low demand. “Because the local economies are less developed” in these inland cities “few passengers went to Zhengzhou from Xi’an,” a source said, without elaborating.
Business may pick up after 2015, however, after the line is connected to what’s now an unfinished high-speed railway between Zhengzhou and the Jiangsu Province city of Xuzhou. The new tracks are to link with the Beijing-Shanghai line and steer more passengers onto trains to and from Xi’an.
It’s likely that the generally positive results for the fledgling fast-train network helped convince central government officials to step up project investments in recent months.
After getting a green light from the government’s chief economic planners at NDRC, the rail ministry said July 30 it would spend 470 billion yuan this year on high-speed railways. That represented a 14 percent increase in spending from a previous budget plan.
Caixin learned that a dozen new projects, some of which tied to high-speed lines, were to be added to the ministry’s to-do list this year. Last year, work began on 70 new rail projects including the Tianjin-Baoding line in Hebei Province
The decision to pick up the building pace underscored changes in NDRC’s outlook for high-speed rail. Planners had earlier decided to slow the ministry’s construction pace in reaction to the 2008 global financial crisis, Liu’s downfall and the Wenzhou crash.
A post-crash, August 2011 decision by the State Council set the stage for the slowdown by ordering new safety evaluations for previously approved but unfinished projects, and suspending new project reviews.
The ministry then followed NDRC and State Council direction by spending just 148.7 billion yuan on new infrastructure in the first half of this year, 93.4 billion yuan less than in same period last year.
Some NDRC officials earlier feared the ministry was doing too much at once. Others disagreed with the railroad agency’s plan to install its fastest trains on lines nationwide, even in less-developed areas.
NDRC and ministry officials have apparently reached consensus on these and other sticking points, paving the way for new projects and finishing those stalled since last year.
“We hope we can put into operation the projects we have already started building,” said an NDRC official who declined to be named.By staff reporters Gu Yongqiang, Wang Chen and Yu Ning 09.10.2012 18:20