In the fast lane

PUBLISHED : Thursday, 27 July, 2006, 12:00am
UPDATED : Thursday, 27 July, 2006, 12:00am

Undeterred by reports of soaring capital spending, Beijing is forging ahead with a national expressway grid that will eclipse America's famed interstate system, writes Tom Miller

'Afoot and light-hearted I take to the open road,' sang America's national poet Walt Whitman at the end of the 19th century. His ode came 20 years after the invention of modern asphalt in New York City heralded the rise of an economic superpower based on a superior road transport system.

China's asphalt obsession may have started 100 years later, but the central government regards an integrated expressway network as a cornerstone of its own development goals and, as such, is steaming ahead with its plans for the first expressway network to rival the US Interstate Highway System.

Expressway construction began in 1988, when the late premier Zhao Ziyang persuaded his Politburo colleagues that roads - then largely a transport option for a bourgeois elite - were essential to economic growth.

China's expressways already rank second in the world after the US. Last October, the Ministry of Communications published a plan to expand the expressway network to 85,000km - about 10,000km longer than the interstate network in the US.

Dubbed '7-9-18', the plan is to connect all towns and cities with a population of more than 200,000. The network will consist of seven key expressways radiating from Beijing, nine running from north to south, and 18 crossing from east to west. Trunk roads will account for 68,000km of the total, while five regional ring roads will add a further 17,000km.

It is the kind of infrastructure orgy that was reflected in last week's figures on capital spending. Investment last month on roads, factories and property in urban areas rose 33.5 per cent year on year, according to the report. And the expressway system is proceeding at breakneck speed, with the China Daily reporting recently that 41,000km had been completed by the end of last year. In Guangzhou, work is due to begin on 12 new expressways that will run through southern and northern parts of the city. The city's total transport budget for 2006 alone is 20 billion yuan. Over the next few months, construction will begin on new expressways emanating from Fuzhou, Chengdu , Hefei and Lanzhou .

The total estimated expressway investment over 30 years is 2 trillion yuan, with an initial annual investment of 150 billion yuan through to 2010, adding about 3,000km of road per year. Somes estimates have the total system finished by 2035.

One expressway is slated to run from Beijing to Taipei, although details of this part of the plan are not available.

The new plan expands the original expressway mandate, which focused on an inter-connected system along the prosperous east coast. Aside from 'beefing up road coverage' in the east, Minister of Communications Zhang Chunxian said the new target was to 'interconnect the roads in the central region and realise the accessibility of the expressway in the west'.

On completion, people in the eastern provinces should be an average of just 30 minutes from the nearest expressway, while those in the central provinces will be one hour away, and those in the remote west, two hours. The government hopes the new road network will push about 400 million people from low- to middle-income status over the next 10 to 15 years.

Hopewell Holdings chairman, Sir Gordon Wu Ying-sheung, said building roads in remote provinces was vital for stimulating local demand. However, Sir Gordon said he had no plans to invest outside Hong Kong's backyard. 'Usage determines how lucrative your road is,' he said. 'Car ownership rates are growing at 25 per cent per year in Guangdong. That's why I don't do anything in Ningxia. It's like investing in California rather than Wyoming.'

Developers such as Hopewell Holdings Infrastructure (HHI), the listed arm of the Hopewell Group responsible for expressway development, work on a build, operate, transfer basis, which means they have a limited number of years to make money from a road before ownership returns to the local government. The unwritten rule for calculating the total commercial operating period is the time taken to pay back construction costs plus half that time again.

Operating roads in the right place, however, can be a lucrative business. HHI recouped its investment on the Guangzhou ring road and the Guangzhou-Shenzhen expressway within nine years, and collects an average of 10 million yuan per day from its Guangdong toll roads.

In contrast, NWS Infrastructure Management, an arm of Hong Kong-based New World Development and a major operator of mainland expressways, is switching its attention from the Pearl River Delta to the interior. NWS director Frankie Cheng said that most economically viable expressways in the eastern provinces had already been built. 'There may be less traffic and the growth is lower in the interior provinces, but we can still get a better return,' he said.

Transporting goods in China's enormous interior is a hugely costly business. Shanghai-based logistics and express transport provider TNT China chief executive, Ken McCall, said that national coverage was the biggest challenge to operating in China. 'I like to tell our clients that Germany fits into China 27 times,' he said. 'Covering China is a monumental task.'

TNT China is aggressively expanding its network across the country. Last year, it tripled the number of its branches and acquired the domestic, northeast-based HOAU Logistics Group, owner of the largest private road-transport network in the country. HOAU has more than 1,100 depots, covering all major and second-tier cities, with a fleet of more than 3,000 trucks and 12,000 employees.

However, immediate profits do not necessarily lie in the central and western regions. 'Although the hinterland business is definitely growing, its percentage of overall business will still be relatively modest for the next five to 10 years,' Mr McCall said. 'The coast is still a much bigger driver.'

He said that over the next two years, he expected the most significant growth to come from the major cities along the Bohai Rim - Dalian , Tianjin and Qingdao .

The transport sector's challenge is to make efficient use of the road network. Now that the 'hard infrastructure' is largely in place, Mr McCall said, attention should be turned to improving the 'soft infrastructure'. Customs clearance problems and poor national highway management were more of a hindrance than any lack of physical infrastructure, he said.

According to Henrik Anker Olesen, leader of Asia-Pacific transport and logistics at IBM Business Consulting in Shanghai, annual transport and logistics costs in China account for 18 to 22 per cent of total gross domestic product, compared with 9 per cent in the US, and 5 per cent in Europe.

Inefficiencies include the expense of acquiring local transport licences and, according to sources, greasing the palms of local officials in return for official stamps that enable provincial border crossings.

Mr Cheng said overloaded trucks - often as much as 200 per cent overweight - were one of NWS's biggest problems as they ramped up road maintenance costs. Toll takings barely covered the extra maintenance costs caused by overloaded trucks, he said.