Today's Top Gainer
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China’s growth story knows no bounds. And boosting this expansion drive is an impressive contraction spree: thanks to China’s High-Speed Rail (HSR) network that’s all set to dramatically reduce boundaries between cities and towns. The HSR promises to shrink travel time between the country’s north and south ends by an estimated 65 per cent while the east and west ends will see a reduction of 75 per cent. This means, China, as measured by travel time, will shrink to 9 per cent of its current size to scale new heights in regional development on the wings of passenger and freight haul.
What began as a humble experiment in 2003 is slated to reach 28,000 km in length by 2014 - twice as large as similar networks in the rest of the world combined.
Need for speed
The country’s need for speed is not hype as it may appear to be. Chinese railways have become a bottleneck owing to low past investments. In contrast, the prospects of pumping more funds on tracks seem lucrative due to the following factors:
Growing Transportation demand
Transportation is highly correlated to economic growth. Worldwide trends show a direct correlation between transportation (passenger and freight) and GDP growth. Going forward, China is expected to grow at a rate of 7 to 8 per cent. Like Japan of the 90s, the country seems rolling in a phase of decent, if not extraordinary, development. By that pace, China’s passenger and freight traffic would be 2.2x and 1.8x respectively in relation to the 2008 figures. An average Chinese travels less than 5 km per day while an American travels 18 times more. With the benefit of today’s technology and information dissemination, the people mobility in China is definitely on the rise.
Environment & Energy Edge
In this age of global warming, China is doing the prudent thing of investing in the greenest mode of transportation. Compared to other modes, trains emit much less CO2. As for energy consumption, other modes on an average consume 6 times more energy than trains. The benefits are crystal clear.
Low past investments
Railways account for 34 per cent of China’s current passenger transportation and 44 per cent of cargo traffic. In the past ten years, while the rail network expanded at 1.8 per cent annually, passenger and cargo traffic grew at over 7 per cent annually. Only 0.25 km of tracks were built for every 1 km of expressways over the past ten years. China’s railway network is clearly overstretched due to the relative lack of infrastructure spending. Given the sheer size of the nation, it was more prudent to build new with the promise of high speed rather than tweak the old.
Speed at a premium
By 2014, China would have spent US$ 500 billion on HSR. On the demand side, the average ticket price at three times more than the conventional may be harsh on the pocket. But several factors promise the commercial viability of this venture. One among them is the rising affluence of the Chinese as shown by the 13.9 per cent growth in air travel from 1998 to 2008. Also, the individually-owned passenger cars reached 28.8 million in 2008 - 120 times the figure of 1990. In 2009, China dethroned the US to become the world’s largest auto market. Another influence is the monopoly of MoR in providing value-added services by phasing out low-quality services like the Green-skin cars. Going by the unadjusted base fares despite growth in personal incomes, there is abundant scope for a price hike in fares.
As regards competition, conventional trains are the only threat to HSR but given the fact that MoR can curb their usage at will, there’s hardly any competition in the real sense. To top it all, the government’s clean energy and pro-environment policy with its ambitious target of energy intensity and CO2 emission cut of will boost the MoR drive further.
The track ahead
By 2020, HSR is estimated to reach the 1600 billion per km mark, still less than 50 per cent of the HSR capacity. Based on 40 cents/km rates, this would reap revenues of US$ 94 billion at an investment of US$ 600 billion. The ROI is not less impressive - given the high stakes. And add the indirect benefits - annual savings of US$ 35 billion due to curbed oil usage from reduced road and air travel, US$ 4 billion saved annually from CO2 emission drop and US$ 33 billion from reduced travel time. The thrill of high speed promises to fetch high returns as well. No wonder, Minister of railways Liu Zhijun, nicknamed “Leap” Liu, has vowed to cover over 13,000 km by the time he retires. Given the fact that China had a sole 405 km experimental HSR when he took over the reins, the leap is obvious.