The red line

PUBLISHED : Wednesday, 18 May, 2011, 12:00am
UPDATED : Wednesday, 18 May, 2011, 12:00am


The cost of China's high-speed rail network and the debt it will leave behind have become a matter of intense debate since the dismissal of railway minister Liu Zhijun in February. The debate has been provoked by the publication of financial data about the network and the extent of the corruption of Liu and other officials that followed his arrest.

Zhao Jian, a professor at Beijing Jiaotong University, is one of the most outspoken critics of the high-speed rail network. 'China should not build a high-speed railway network at all. The speed on its existing network has already reached 200 kilometres per hour, which is high-speed according to the International Union of Railways. There is no need to build a network of 350km/h trains,' he said.

China had 8,358 kilometres of high-speed rail track by the end of last year and is building a further 17,000 kilometres. The largest high-speed rail project in history, it dwarfs all the networks in Europe.

Will Beijing follow the example of Japan, France and Taiwan and be saddled with an enormous long-term debt to keep its network running? And should it have followed India and Vietnam, which declined the opportunity to build a high-speed rail network?

According to the National Audit Office, the debt of the Railway Ministry at the end of 2009 reached 1.3 trillion yuan (HK$1.47 trillion at exchange rates then), 854.8 billion yuan in short-term instruments and 448.6 billion yuan in long-term bank loans and bonds. During the National People's Congress this March, the new minister, Sheng Guangzu, described the level of debt, at 56 per cent, as comfortable and under control.

China Minsheng Bank thinks this is an underestimation. In a report last year on the country's transport network, it projected that the level would top 70 per cent by next year.

Professor Zhao argues that there is already a debt crisis. 'If the projects under construction are not stopped and we complete the spending of 4 trillion yuan, we will have absolutely no ability to repay.'

Zhao puts the blame mainly on the Ministry of Railways. 'It has a monopoly on transport resources, the market and information. The central government had no other means to understand the railway situation. The public and the Chinese economy have no need of this 350km/h railway.'

On May 2, the ministry announced a pre-tax loss of 3.7 billion yuan in the first quarter. It said that, as of the end of March, it had 3.41 trillion yuan in total assets and 1.99 trillion yuan in total liabilities, a debt ratio of about 60 per cent.

Zhao's is a minority view. Most economists support the government's decision, saying the network cannot be measured only by the level of debt incurred. They argue that it will bring benefits to the whole economy. 'With Beijing at its centre, the network will connect all the provincial capitals to the capital within eight hours,' said Wang Mengshu, a member of the Chinese Academy of Engineering.

'The network will bring economies of scale. The pace of development should not be slowed down.'

They say that the network will attract people, goods and investment, domestic and foreign, to areas in central and western China previously considered too remote; it will be an engine of growth in these areas. They say the current system cannot meet the growing demand for goods and passengers: the network will move people away from the roads and relieve the serious traffic congestion in major cities and be more environmentally friendly than carrying passengers by air.

They point to France as a model - its Train a Grande Vitesse (TGV) rail service has played a major role in binding the country together. It allows people to live a substantial distance from Paris, Lyons, Marseilles and other major cities and work in them; it has raised the value of property in the towns and cities on its routes and slowed the decline of rural areas. This has made the government happy to provide a substantial subsidy to the TGV network to keep it operating and expand it since the first line opened in 1981.

The example of Japanese National Railways is more ambiguous. In 1987, its debt reached more than 27 trillion yen (HK$2.6 trillion) and it was spending 147 yen for every 100 yen earned. The network was privatised into seven companies and the debt transferred to a public corporation. By 1998, this debt reached nearly 30 trillion yen and was incorporated into the government's general debt.

The Chinese government regards the high-speed rail network as a project of strategic importance, like the construction of aircraft carriers and the building of airports in all corners of the country. Only time will tell whether the Pharaonic investment will deliver a good return or become an albatross of debt around Beijing's neck.

Mark O'Neill worked as a Post correspondent in Beijing and Shanghai from 1997 to 2006 and is now an author, lecturer and journalist based in Hong Kong