Chinas High Speed Rail

Running head: CHINAS HIGH SPEED RAIL

ASSESSING CHINAS HIGH-SPEED RAIL DEVELOPMENT: A POLICY ANALYSIS

David Wolf
Oxnard, California
Revised September 1, 2016

Chinas High Speed Rail

Abstract
Once cited by President Barack Obama as a model for the future of U.S. intercity transportation,
Chinas high-speed passenger rail (HSR) system came under scathing attack from many quarters
following revelations of corruption and mismanagement at the top of the Ministry of Railways
and within the HSR construction complex. Based on current business literature and personal
observations, this paper concludes that, in view of Chinas particular circumstances, HSR is a
natural and necessary component of Chinas evolving transportation system, and that debate on
HSR in China must focus on the institutions and oversight necessary to guide its success.

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Assessing Chinas High-Speed Rail Policies

Growing in prominence among the challenges facing Chinas policy makers is the matter
of how to provide transportation to Chinas increasingly prosperous and mobile population. The
issue has become acute. Reliance on a traditional travel infrastructure personal automobiles,
buses, standard railroads, coastal ferries, and commercial aviation has left China not only
unable to cope not only with extraordinary events (like the Chinese New Year blizzard of 2008),
but with the encumbrances of holiday travel rushes and, in some cases, with ordinary daily
commuting volumes. Making the issue more vexing is that the same infrastructure is tasked with
the logistical burdens of Chinas export economy and the growing material demands of the
nations urban population.
Against this background, China finds itself in uncharted territory. No country in history
has faced the particular set of challenges confronting the nations leadership as it seeks to
construct a scalable and resilient transportation infrastructure. There are no models to follow, no
solutions to copy, and precious little time for experimentation. Decisions on, and commitments
to, wholesale reconstruction of the nations transportation infrastructure are made in an
environment of economic and political urgency that put haste before care.
The choice has been to invest heavily in order to add capacity to all transportation
networks, but a particular focus has been given to the development of an unprecedented network
of intercity high-speed rail (HSR.) China now has over 8,358 kilometers of HSR lines in service
and a like amount under construction, and the central government has allocated over US$106
billion for HSR construction in 2011 alone. (Dyer, 2011) The effort has won the attention of the
world and the praise of U.S. President Barack Obama, and has revitalized support for high-speed
rail projects in the United States. (Allen, 2010)

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But discomfiting revelations have begun to surface about the build-out of the HSR
network. The central government had already begun a review of the program when state news
agency Xinhua announced on February 13, 2011 that Minister of Railways Liu Zhijun, who has
spearheaded HSR development during his eight years in office, had been removed from his post
and placed under investigation for what were apparently corruption-related charges. (Dyer, 2011)
Unsurprisingly, this news provoked a flow of criticism of Chinas HSR plans from
overseas. What was perhaps surprising about the tone of the criticism was the focus not on the
specific shortcomings in the construction or management of the system, but of the very idea of
HSR in China. Representative of the programs critics was Tim Ferguson, the New York-based
editor of Forbes Asia magazine. Writing in his column, Ferguson (2011) noted that a large HSR
network was not appropriate to Chinas needs, and that it was merely another symptom of a
bubble economy in which vast sums are misspent on underutilized assets.
Not So White An Elephant
Continuing revelations make clear that there has indeed been waste, likely fraud, and
both perhaps on a massive scale in the construction of Chinas high-speed rail system. The most
recent report, that of some US$30 million of misallocations in the construction of the BeijingShanghai high-speed rail line, appears to be but the first of many similar disclosures to come.
(Anderlini, 2011) And while an analysis of U.S. transportation needs is outside the scope of this
paper, lessons learned in China may well call into question the viability of planned HSR systems
in the United States,1 short of sustained record highs in petroleum prices or a quadrupling of the
U.S. population. What is lost in the heat of what is becoming a highly politicized debate,

The Obama administrations use of Chinas HSR system as an admirable model for the US appears to be the
source of much of the antipathy US critics like Ferguson (2011) and fellow columnist Joel Kotkin (2011) express
toward Chinese HSR.

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however, is that neither of these factors militate against the viability of and the long-term need
for high-speed passenger rail in China.
China has had for some time examples of high-speed intercity rail lines that are arguably
successful and popular, including the Shenzhen Guangzhou, the Beijing Tianjin, and the
Shanghai Hangzhou lines.2 Indeed, one could argue that it was the very success of these
projects that provided proof-points for the significant expansion of China's own bullet trains.
These projects form a small but essential part of the nations intercity transportation
infrastructure, and thus appear to have laid to rest the question of whether HSR is appropriate
for China.
What remains to be assessed is whether or not a wider adoption of HSR in China is
necessary or appropriate, or whether it is, as Ferguson suggests, misspending on assets destined
to be underutilized. First, it is essential to note that the lines mentioned above are limited
examples of routes with extraordinary situations. The distances between the city pairs are too
great or too traffic-laden for taxi, bus, or personal automobile, and are too near to justify air
travel. There is also already a great deal of traffic between the two cities, with one sometimes
serving as a satellite to the other. Other city pairs like this would include ChongqingChengdu,
ShanghaiNanjing, WuhanChangsha, JinanQingdao, and ShenyangDalian. There is an
argument to be made that China should have limited its high-speed intercity rail to just such city
pairs, and if China were a developed country whose populace had already completed its
migration from the countryside to the cities, this argument would be worth making.

Despite growing popularity with riders, there are considerable challenges in determining whether these lines can
yet be termed financial successes. Financial results from the Guangzhou Shenzhen line are mixed with revenues
from through trains and freight trains. The Beijing Tianjin line is still losing money after three years, but is
approaching breakeven and may well become profitable within a year, and the Shanghai Hangzhou line has just
upgraded its track and rolling stock to accommodate even faster trains and has not released financial results.

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Driving High Speed Rail

China is, however, not yet a developed country, and we have not yet seen the nation pass
the halfway mark on the urbanization of its population. It is, however, growing and urbanizing
rapidly, and those changes compel the nation's leaders to project two decades or more into the
future when making transportation infrastructure investment decisions. As the nations leaders
contemplate their options, they face a series of factors that argue in favor of wider rollout of
high-speed passenger rail:
Urbanization - Chinas population is leaving the countryside and becoming increasingly
urban. As Richard Hobbs noted in a recent article in Foreign Policy, by 2030 China will have 44
cities boasting populations in excess of 4 million souls, and 221 cities with over 1 million in
population. To put that into perspective, in 2009 the United States had two cities in excess of 4
million souls, New York and Los Angeles, and only 10 with a population over 1 million. In
essence, within two decades, China will have 44 cities equal to or larger than Los Angeles in
population. (Dobbs, 2010) This suggests that the number of viable city pairs for HSR will grow
accordingly.
Density - Chinas urban population density is high, and it is growing, in particular along
nations seaboard. Even as of 2006, China's urban population density - the average number of
people living in a square mile of a city - was 27,300, three times the global average and nine
times the U.S. average, even excluding Macao and Hong Kong in China's figures.
Megacities - China is planning the creation of at least two and possibly more mega-cities,
one clustered around Guangzhou in the Pearl River Delta, and one around Beijing and the North
China plain. These cities will be so large as to require a re-thinking of intracity transportation.

Chinas High Speed Rail

High-speed passenger rail is likely to form the core of the mega-city rapid transit system, linking
thence to subways, taxis, and bus lines.
Energy - Built around gasoline-powered automobiles, diesel-powered buses, and
kerosene-powered aircraft, Chinas transportation network is dependent on supplies of imported
petroleum, and that dependence is growing as China grows. Policy-makers seeking viable
transportation options that are not beholden to the petroleum supply are naturally drawn to rail,
and would thus likely to favor HSR as a substitute for air travel on shorter routes.
Environment - China's leaders breathe the same air the rest of us do, and it would take a
theatrical degree of paranoia to think that they delight in modern cities with sludge-enshrouded
skylines. High-speed rail, if fueled by dirty-coal generated electricity, is not going to make
China's air any cleaner, but the ability to drive it based on nuclear, wind, solar, wave and other
forms of cleanly-generated electricity make it a potentially greener means of intercity travel than
buses and aircraft.
Expertise - The other development motive behind high-speed rail is the belief that if
China can build tens of thousands of kilometers of high-speed railways, along with the
equipment, locomotives, rolling stock, and software to make it all run, the nation can become a
global player in the construction and management of such railroads. The effort is already
underway, most notably in California's on-again, off-again high speed rail project, where CSR is
partnering with GE on one bid for the trains themselves, China Rail Construction Corporation is
partnering with Fresno County to bid on a maintenance and repair facility, and China itself has
dropped hints about financing the whole venture.

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Policy Recommendations: Begin with Economics

Politics and face aside, then, there is a strong if not compelling case for HSR in China.
The danger, however, is in being so convinced by that case that HSR becomes a panacea for
most or all of Chinas transportation needs. China is not the United States, where modest
population densities, distances, and terrain make HSR a challenge, but nor is it Western Europe
or Japan, where smaller geographies and population distributions are challenging for air travel in
an age of expensive petroleum.
What critics should be focused on, therefore, are factors that threaten the success and
viability of the system, and on inciting a process designed to lead to an intelligent, well-planned
rollout of an appropriate HSR system. An injection of systemic sobriety to counter the early
intoxication with HSR is in order, and that calls for tools and institutions to evaluate projects
with at least a modest degree of objectivity and transparency.
Because of the fixed, inflexible nature of high-speed rail's assets (as opposed to, say,
those of an airline, which can be shifted with relative ease) an essential first step would be the
creation of a clear process and an economic framework within which the National Development
and Reform Commission (NDRC) can evaluate the current and projected viability of a given line
over the long term. Clearly the success of the early lines suggest the beginnings of such a
template: Beijing to Shenyang, yes, Beijing to Urumqi, probably not.
Where the model would serve the greatest value is in the cases of those routes that fall
somewhere between the two extremes. To take a prominent example, despite the attractiveness
of the BeijingShanghai HSR to executives, professionals, commuters, tourists and senior
cadres, the route between the two cities probably stretches the distance limit of a viable HSR
line. Much longer than this, or even with a line of a shorter length and less attractive city pairs,

Chinas High Speed Rail

and a simple time-in-motion study is likely to reveal that air travel is the better option. (Indeed, it
may well be this factor that inhibits ridership on the WuhanGuangzhou HSR line.)

Policy Recommendations: Institutions and Infrastructure

Time in motion studies, engineering studies, and economic evaluations would all be
worthwhile, but only if conducted by institutions and individuals lacking a vested interest in a
given decision. The NDRC is named above as the evaluating agency for HSR lines. This is not
an arbitrary assignation. A brief digression is in order so as to explain.
Among other phenomena, Chinas development has seen the emergence of what can be
called government-industrial complexes, which we will abbreviate here GICs. Often as the
result of national industrial policy, a regulatory agency will be appointed by the central
government to aid and encourage the development of a domestic industry. In the cases of several
sectors, in particular those concerned with the development of infrastructure (but extending into
such areas as banking and entertainment), that assistance often includes projects or plans over
which the regulatory agency holds budgetary discretion. Over time, the relationship between the
regulator and the companies it regulates (especially the state-owned enterprises (SOEs) in its
sector) grows closer. Even if the agency is not effectively captured by the industry and in the
absence of outright corruption, a commonality of interests emerges that can inhibit the
determination with which an agency pursues its regulatory mandate. (see Hanson and Yosifson,
2003; Davidoff, 2010.)
The implicit message behind the sacking of the railways minister is that a RailwayIndustrial Complex appears to have developed in China between and among the ministry, the rail
construction companies, and the domestic enterprises that manufacture the materials and

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equipment used in railway construction. For our purposes, this means that in order to maintain
some degree of objectivity and transparency, the final evaluation of the viability of HSR lines in
the future will require an agency from well outside this triangle, and preferably senior to the
ministry itself. Given the vast sums at stake and the unraveling issues at the top of the Railways
ministry, it should not come as a surprise if controls of precisely this nature were not already
under active discussion.
Afterword: The Communist Canard
It is tempting to lay Chinas HSR problems at the foot of the nations system of
government, and Ferguson succumbs. He suggests that the real problem with HSR in China is
that the market mechanism is missing, and that all of this money spent on high-speed rail is a
massive misallocation of resources that is a hallmark of top-down systems such as in
Communist China.
It is outside of the scope of this paper to offer even a cursory catalogue of the massive
misallocations of resources that have taken place in presumably bottom-up polities like the
United States, Britain, Japan, and the nations of the European Union. It should be sufficient to
say that the historical record gives ample proof that "top-down systems" like those in China
enjoy no monopoly over expensive government boondoggles, and that the problem of regulatory
emerged in free-market economies (see Hanson and Yosifson, 2003; Davidoff, 2010.)
Further, it is worth pointing out that one of the few downsides of market mechanisms is
that they occasionally stand in the way of solutions that make more sense when the full costs of
implementation are considered. I grew up in a Los Angeles choked by its forced dependence on
the automobile, the results of a GIC formed between local government and automotive interests
that dismantled a viable interurban rapid transit system because it didn't want to pay for

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upgrades. (Span, 2003) Half a century later, a new generation of southern Californians
confronting the limitations of automotive transport is footing the bill to rebuild it completely.
Given the pressures of its accelerated development, China can ill-afford this kind of market
mechanism.

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