The building of China’s high-speed rail network counts as one of the greatest transportation success stories so far this century. That doesn’t mean the country can repeat the trick.

When plans for a nationwide network of trains traveling at up to 350 kilometers per hour were first hatched in 2004, it was thought such projects could only be viable in rich countries. Beijing’s economic planners proved those naysayers wrong. Now, two-thirds of the world’s high-speed rail is in China and passengers take 3.7 billion rides every year, more than half of that number on high-speed trains.

Those achievements look modest next to what’s planned for the coming decades. China State Railway Group this week put out the sequel to the 2004 plan, promising a network 200,000 kilometers long by 2035, up from 141,000 km now. High-speed tracks will comprise 70,000 km of the total -- roughly double their current length.

For all the nation-building pride that can attach to such ambitions, it’s a bad idea.

China’s high-speed rail network is already bigger than it ought to be. The entire route from Beijing in the north to Guangzhou in the south is barely more than 2,000 kilometers. A 70,000-km network would have to extend deep into the backwoods, to cities like Kashgar in Xinjiang and Shigatse in Tibet. Already, too much spending has gone on serving areas where the population is too small and low-income to make high-speed rail viable. Further extending train lines to yet smaller cities will make that problem worse.

High-speed and conventional rail has impressive potential to reduce the quarter of global emissions that come from transportation. Overall emissions per passenger, per kilometer on the rails are about one-tenth of what they are from flying. Even so, across the world, high-speed rail normally depends on a combination of four factors to stack up financially: high population density; strong state backing; intercity distances of less than about 1,000 kilometers; and high incomes.

China scores on the first two points but the latter two are shakier, especially as you move away from the affluent coastal provinces. A World Bank study last year found that only five out of the 15 fastest 350 kph lines cover their operating and capital costs, while six are unable to pay the interest on their loans. The situation is worse for the 250 kph lines that make up the bulk of high-speed traffic: Just five of 16 lines were able to cover their operating and maintenance costs, and none had the profits to pay back interest, let alone debt principal.

Thanks to the drag on operating profits and the debt burden from the slower lines, China State Railway is barely making money as it is, and was carrying about 5.28 trillion yuan ($760 billion) of debts last year. At typical construction costs of roughly $20 million per kilometer, building out the high-speed network as envisaged will nearly double that debt load.

The new routes will have even less traffic and revenue than the priority lines that have already been constructed. The build cost, though, will be little different than what’s seen on the busier, profitable lines connecting the likes of Beijing and Shanghai.

A better approach would be for the country to link its transport planning to the ways it needs to reform freedom of movement as a whole. The hukou household registration system, which prevents rural migrants from using big cities’ sought-after government services such as state schools, is only tentatively being reformed. Restrictions will be loosened for cities with less than five million people, but the 13 major centers with the most dynamic economies will remain largely closed.

That will ensure the population is more thinly spread across a larger number of subscale cities, weakening the productivity benefits that would accrue from more aggressive urbanization. It will also guarantee that more travel happens on low-density, low-patronage lines. Offsetting the roughly 1 billion metric tons of emissions that will be involved in building out the network to 70,000 kilometers will only happen to the extent that trains displace planes and road vehicles -- and that process, too, is likely to be slower on lower-density lines.

At this point further development isn’t being driven by passenger demand or climate goals, but Beijing’s addiction to using carbon-intensive infrastructure to stimulate a rapidly slowing economy. Countries like the US and UK that have shown a chronic inability to get high-speed rail built have much to learn from China’s ambition and execution -- but China could learn from the more cautious approach to megaprojects seen elsewhere. Building out the network at this point will prove a costly boondoggle.


David Fickling
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. -- Ed.

(Bloomberg)