Fixation on profits leads rail observers off track

By Wang Jiamei Source:Global Times Published: 2014-12-17 17:38:01

Benefits of high-speed rail transport stretch beyond operators’ balance sheet


Illustration: Chen Xia/GT



News came last week that the Beijing-Shanghai high-speed railway line could soon turn profitable. Completed in 2010 and put into operation in 2011, the 1,318-kilometer-long line runs through Beijing, Tianjin, Shanghai and provinces of Hebei, Shandong, Anhui and Jiangsu, shortening the travel time between Shanghai and Beijing to less than five hours. Over the years though, much of attention given to the 220.9 billion yuan ($35.68 billion) line has been on its operating losses and slow return on investment.

While high-speed railways can greatly reduce travel time, many have questioned the ability of these assets to generate a profit. According to media reports, China Railway Corporation saw its liabilities increase to 3.4 trillion yuan by the first half of this year, including more than 2 trillion yuan incurred through high-speed rail construction. As the Beijing-Shanghai line runs through some of the country's most prosperous regions, it arguably stands the best chance of making a profit. Some industry observers have even gone so far as to conclude that if this project cannot succeed financially, it could be virtually impossible for other high-speed lines to make money.

The latest data show that as of December 7, passenger trips on the Beijing-Shanghai high-speed line had exceeded 100 million, up 27 percent compared with the same period last year, representing a high likelihood of profitability, the Xinhua News Agency reported. According to Xu Haifeng, general manager of the Beijing-Shanghai High-Speed Railway Co Ltd, passenger trips grew 23.7 percent and 33 percent respectively in 2012 and 2013; while the railway currently records daily trips of 340,000 to 380,000, with over 100 million yuan in fare revenue collected on a daily basis.

All of this is good news for those who are concerned about the profitability of the debt-laden high-speed rail sector. Yet, some experts remain skeptical about recent estimations. For one thing, under the current management structure, the line's operator only owns the line's infrastructure, with local railway bureaus left to offer services like train conduction, maintenance and staffing. Without knowing the real costs of the entrusted operating fees, it remains uncertain whether the Beijing-Shanghai high-speed line will see a profit this year.

Moreover, even if the line does turn a profit, there is no way to replicate such a success with other high-speed lines. The Beijing-Shanghai line is perhaps just an exception, one which cannot be representative of the entire high-speed rail sector. The line covers the country's most populous and developed areas, providing enough passenger traffic to potentially cover its relatively high up-front costs. Other lines passing through more sparsely populated areas where personal incomes are lower will be at a disadvantage when it comes to making a profit.

Against such a backdrop, the government has been exploring ways to alleviate the financial pressures on the railway sector. One strategy has been to open the sector to private capital. But with little room available to increase ticket prices and the sector's history of financial losses, there is slim chance of the sector actually attracting social investment.

Globally speaking, passenger transportation is not a lucrative industry. Most railway companies generally use profits from their freight businesses to make up for losses in passenger transportation. So far, the world's only real high-speed success story has been Japan's Tokaido Shinkansen, which links the country's three largest metropolitan areas. In this sense, it is widely accepted that high-speed railways that focus on passenger transportation will not be hugely profitable.

Yet, continued losses should not discourage China from building additional high-speed railways. Economic interests should not be the only measures to justify faster transportation. Sometimes it makes sense for the country to sacrifice micro interests for macro benefits. Indeed, we should perhaps be focused less on the profits of individual lines than on the overall level of economic development taking place along the areas they connect.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn

 

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