China Economy

Fast track to big economic benefits

High-speed rail will deliver greater gains on the mainland than in the developed world, according to a World Bank study

PUBLISHED : Thursday, 21 February, 2013, 12:00am
UPDATED : Thursday, 21 February, 2013, 6:07am


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High-speed rail projects on the mainland and in Hong Kong have been criticised by some for being too expensive, but they create broader economic benefits not measured in traditional cost-benefit analysis, according to a study by the World Bank.

Analysts agree.

"High-speed rail will push [mainland] China's economy forward significantly," said Anthony Wong, a former president of the Hong Kong Logistics Association, citing the Chinese proverb, "When the road is through, the money will flow".

The comments followed a report by the World Bank, which stated: "The wider economic benefits of high-speed rail in China seem more significant than in developed countries. [The projects] have the potential to deliver significant benefits."

The report said the high-speed railway between Guangzhou, in Guangdong province, and Nanning, in Guangxi, would generate benefits of 99 billion yuan (HK$122.9 billion) over the next 30 years. This comprises 50 billion yuan in direct benefits, including savings in passenger time and ticket sales, and 49 billion yuan in indirect economic benefits not captured in conventional cost-benefit analysis.

After the rail line opens later this year, travel time between the cities will be slashed from 11 hours to three.

The wider economic benefits of the Nanning-Guangzhou high-speed rail link claimed by the World Bank were far higher than those made for the benefits of similar links in the developed markets of Britain and Australia, said Tom Callahan, the lead managing consultant of ICF GHK, an international consultancy.

In Britain, the Department of Transport estimates the wider economic benefits of the £32 billion (HK$384.4 billion) HS2 high-speed line between Birmingham and London will account for only 20 per cent of all gains.

What is not captured in traditional cost benefit analysis, the World Bank says in its report, is "economic mass" - a measure that combines the size of a city's economy with its accessibility to other regions. A city's economic mass can increase through the size of its economy or easier access to surrounding areas and high-speed rail links can increase the economic mass of the cities they serve by cutting travel time.

"Transport improvements can stimulate economic activity if they improve accessibility for travellers [and] links to major hubs of commerce and information. A business within daily reach of such hubs will be more accessible to a larger pool of labour and other businesses, raising productivity," the report said.

Take, for example, the 2,298-kilometre Beijing-Guangzhou service, one the world's longest high-speed rail lines, which opened in December last year.

"In the past, in a three-hour conventional train journey on this line, three million people from Anyang, Xinxiang and Handan travelled to and from Zhengzhou [the capital of Henan province]," World Bank senior transport specialist Gerald Ollivier said. "With the high-speed line, this number will surge to 28 million people from eight cities, which will work more closely together as a return trip within a day will be within reach."

Ollivier said the resulting economic exchanges, accessibility and productivity gains would be significant and extend beyond traditional transport savings.

After the Beijing-Guangzhou high-speed line opened, the traditional rail link between these two cities was used to transport an additional 20 million tonnes of freight annually, because passengers switched to high-speed trains, said Zheng Tianxiang, a transport professor at Sun Yat-sen University in Guangzhou.

"This is very important, because trains can bring coal from the south to the north this winter while many trucks can't transport coal due to the snow," Zheng said.

He said the mainland was overly reliant on trucks to transport freight and needed to expand rail freight transport.

The mainland has been criticised for having one of the world's costliest high-speed railways, while Hong Kong's high-speed rail link to Guangzhou, the Express Rail Link, has been criticised for being the costliest on a per-kilometre basis.

Beijing will spend 1.88 trillion yuan building 16,448 kilometres of high-speed rail links between 2011 and 2015, according to a bond prospectus issued by mainland train maker CSR.

As a result of such heavy spending, the Ministry of Railways' gearing ratio rose to 60.62 per cent as at the end of March last year, from 53.06 per cent at the end of 2009, while its debt nearly doubled to 2.4 trillion yuan from 1.3 trillion yuan over the same period.

The 26km Express Rail Link will cost HK$66.9 billion. After its completion in 2015, train travel time between Hong Kong and Guangzhou will be cut to 48 minutes from 105 minutes and the link will generate up to HK$90 billion of benefits according to conventional cost-benefit analysis, according to documents presented to the Legislative Council.

"Definitely there are genuine broader economic benefits to be obtained by linking Hong Kong and [mainland] China by high-speed railway. Thousands of mainland businessmen like to come to Hong Kong to do business," Wong said.

While it now took him eight hours to go by train from Hong Kong to Guangzhou, his travelling time to meetings on the mainland would be cut to three or four hours with the express link.

Yunfu, the city with the lowest gross domestic product in Guangdong, could be among the big beneficiaries of the Nanning-Guangzhou high-speed railway, the World Bank report said.

"High-speed rail may stimulate Yunfu's economy in various ways, including access to skilled workers, inflows of capital, growth of export-oriented industries and a boost to tourism," the report said. Yunfu is not yet connected to Guangzhou by rail and a road journey between the cities takes 21/2 hours.

Businesspeople in Yunfu told the World Bank that efforts to attract skills, investment and development were hampered by poor transport access.

But after the Nanning-Guangzhou high-speed link connecting Yunfu to the two cities opens later this year, travel time between Yunfu and Guangzhou will be cut to 40 minutes.

Zheng said Yunfu also had abundant mineral resources but lacked rail links to transport the supplies.

However, mainland high-speed train tickets are too expensive, the professor warned, and Beijing should let the private sector manage the services to lower fares. "The government can learn from Hong Kong's MTR and let the private sector manage train services to improve efficiency," he said.