China has embraced the high speed train (trains that travel at over 250 km/hr) far more enthusiastically than any other country. The current 7,531 km (4680 miles) of high speed track is already more than the rest of the world put together, according to the FT, and under current plans the central government has authorized a high-speed network that will reach 16,000 km by 2020 at a cost of some Rmb 4 trillion ($600 billion) during the next five-year plan alone. The FT reports this figure is expected to account for more than half of all global railway spending during that period, according to World Bank estimates. Even as part of the current stimulus plan, the network is expected to reach 13,000 km by 2012.
But critics are beginning to be heard even within China. One article points out that bullet train services, such as the 1,000 km Wuhan to Guangzhou connection that opened this year, are operating at less than half their full capacity and will never make enough money to repay the large bank loans used to build them. A report submitted by the China Academy of Science to the State Council, urged a rethink of the emphasis on (among other massive infrastructure investments) the bullet train expansion program. One of the concerns expressed in the report is the unsustainable level of debt and that the breakneck expansion has not been properly thought out, leaving airports, bus services, subways and highways not connected depriving the investment of efficiency gains even before the massive debt burden is taken into account.
Does this massive investment in cutting-edge rail technology represent a major opportunity for western rail firms? As an FT article points out, in 2002 China invested nearly $5.4 billion in the segment of the high-speed market in which foreign companies compete carriages, signaling equipment and other high-tech track components and foreign companies captured about 70 percent of that. Today China invests as much as $23 billion in the segment, of which foreign companies account for only 15-20 percent, earning roughly the same as eight years ago, according to industry figures. As a result of a highly successful drive to force foreign companies to transfer technology in exchange for access to earlier projects, China now builds Japanese and European trains in all but name.
But back to the economics. As other countries look on with envy at the shiny new trains, academics — even in China — ask, does it make economic sense? The article quotes Zhao Jian, a professor at Beijing Jiaotong University who favors conventional rail rather than high-speed projects. “This high-speed program is a political project with little economic value, he says. “The government just wants to have the biggest and fastest train set in the world. The railway ministry accounts for as much as 10 percent of all outstanding debt in the country, according to World Bank estimates. Chinese analysts say the proportion of railway construction funded by debt has increased from under 50 percent in 2005 to more than 70 percent last year. That would be fine if the economics were sound and the traffic was sure to generate enough revenue to pay it back. But Mr. Zhao is not so sure. “This is a real debt crisis building up for the government and it is going to break at some point, he said. It sounds not a little like the great American railway building boom of the 1800s, but in this case it will doubtless be Beijing that eventually steps in to pick up the tab, not bond holders.