CHINA suffers direct economic losses of up to 20 billion yuan (about HK$26.98 billion at official rates) because of gridlock in its rail system, according to a World Bank economist. The economist, who declined to be identified, quoted a recently completed World Bank survey of China's rail network, and said that even in the best case scenario, the mainland lost 10 billion to 20 billion yuan in unsatisfied demand. Because of the extremely rapid increase in demand for transport services caused by the economic boom, that figure could rise to between 20 billion and 40 billion yuan by the year 2000. Even assuming that the right measures were taken to improve capacity and efficiency, it was unlikely the rail network would be able to satisfy demand until the year 2020, the economist said. Urgent measures were needed now, he said, to raise rail tariffs and use market price mechanisms to reduce the demand on the rail system. Because of the price distortions caused by decades of central planning, using the highway system for long-haul transport (any journey of more than 100 kilometres) is four to five times more expensive than using the rail system. As a result the rail system is massively overburdened and the highway system relatively under-utilised. The government, in conjunction with the World Bank, is starting to put together new tariff systems which will reduce demand on the system but the economist conceded it could take several more years before the new tariffs become effective. Furthermore, the government will have to adopt measures to reduce the demand for coal, currently the biggest single drain on the rail system's capacity. If the use of coal by power stations and industry could be made more efficient, demand for fuel would be lessened and rail capacity would be freed up for other commodities, he said. The key problem in the rail system, however, is still its lack of carrying capacity, a problem directly attributable to the lack of government investment in transport in the early stages of China's economic reform programme in the 1980s. Beijing invested only 1.4 per cent of its gross domestic product in transport services during the sixth and seventh five year plans (1981-1990), compared with an average of 2.5 per cent to 2.8 per cent in other developing countries such as India, and up to four per cent in industrialised nations such as Japan.