DALIAN, China -- High-speed-rail operator China State Railway Group continues apace with its building despite its ballooning debt, backed by a government that views it as the perfect vehicle to bolster a sagging economy.
"No one is expecting our city to prosper just because we get a new line," said a worker at a grocery store near a train station in Chaoyang, in the northeastern province of Liaoning. Opened in 2018, the station sits in a sleepy area with low passenger traffic and almost no nearby retail shops or hotels. Yet it will host additional service come July.
Chaoyang is a struggling place even for Liaoning, a province suffering from a particularly deep economic slump. Building a new station, and adding new service, in a region without much in the way of industry, only goes to show the lack of profitability-focused planning by a China State Railway that has added track at an annual clip of 10% to 20% in recent years. The network reached about 35,000 km in late 2019.
The state-owned company, spun off from what is now the Ministry of Transport, plans an additional 4,000 km this year, with a goal of expanding the network to 45,000 km in 2030.
"Transportation infrastructure propels economic growth and builds the foundation of a more comfortable society," Transport Minister Li Xiaopeng said in May.
But such ambitions have not made economic sense. While revenue reached 1.13 trillion yuan ($159 billion) in 2019, net profit came to about 2.5 billion yuan, for a paltry net margin of 0.2%. With travel restrictions to stop the novel coronavirus, China State Railway incurred a net loss of 61.3 billion yuan for the first quarter of 2020.
Liabilities neared 5.49 trillion yuan, or $773 billion, at the end of 2019. Except for service in such major cities as Shanghai, many of China State Railway's high-speed lines are bleeding red ink, with finances particularly weak in such economically struggling regions as Liaoning, China's northernmost province of Heilongjiang, and Inner Mongolia. Among its 18 operating units across the country, 11 posted net losses for the first half of 2019.
Chinese President Xi Jinping's government was already promoting infrastructure work to prop up the economy and create jobs before COVID-19 hit. Now, with the pandemic dealing an economic blow, railway and road construction has become even more important.
Regional governments are also desperate to hop aboard.
"We want the railroad to come to our region as well," pleaded officials from Jiujiang, a small inland city in Jiangxi Province, at the National People's Congress in May.
"Local government officials want to achieve economic growth through railway construction during their terms with no regard for how to repay debt," said Zhao Jian, a professor in the School of Economics and Management at rail-focused Beijing Jiaotong University.
"Repaying is impossible at this point," Zhao said.
Improving profitability by raising ticket prices is a tall order, with fares for such public transportation as buses and taxis usually set low. China State Railway also transports freight. But tracks not built for the weight of cargo trains pose a hurdle to expansion.
The central government has announced roughly $14 billion in fresh capital for high-speed rail, split equally between bonds and a direct injection into China State Railway. The company "should scale back construction of high-speed rail and instead increase ordinary railroads that can handle freight trains," Zhao said. But it is unlikely to heed voices like Zhao's.
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$44 Million Loss per Day | High-Speed Rail, the Gray Rhino Impacting China’s Economy | Ghost Rail
China Observer
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As of the end of 2020, China's high-speed rail operating mileage reached 37,900 kilometers, accounting for two-thirds of the world's total mileage, far ahead of other countries.
If you only look at the operating mileage and the speed, you’ll think China's made great achievements for the high-speed rail. But if you look on the other side, China's high-speed rail is also No.1 in terms of debt and operating losses, and has a detrimental impact on China's cargo transportation structure.
On August 31, China Railway released its financial results for the first half of 2021. Data show that in the first half of the year, the company achieved a revenue of 512.8 billion RMB, the net profit is a loss of 50.7 billion RMB, which is equivalent to a daily loss of 280 million RMB, or 44 Million USD. In the first half of last year, due to the impact of the pandemic, the company’s net loss was as high as 95.5 billion RMB.
As of June 30, China Railway’s total liabilities reached 5.8 trillion RMB, its total assets are 8.76 trillion, and the gearing ratio exceeds 66%. The construction of China's high-speed rail relies mainly on bond issuance and bank loans. As reported by China Newsweek in April this year, the pressure of debt repayment for China Railway has arrived.
Most of these bonds have a 5-year maturity term. Since 2021, the peak period of principal and interest repayment has come. At present, the cash flow of railway transportation revenue is not enough to cover operating costs, and China Railway’s daily operations still rely on financial subsidies, no need to even mention repaying debts and interest.
Many local governments have shouldered huge debts because of the high-speed rail construction.
The construction of high-speed rail projects in underdeveloped areas leads to high levels of the local government debt, while the low utilization rate and low operating income of high-speed rail will expose local governments to higher financial risks than China Railway Corporation.
The local government debt caused by the construction of high-speed rail is a black box, mixed with various types of local government liabilities, which have been estimated to be as high as 18.29 trillion RMB. In a previous video, we have talked about how serious local governments’ debts are, and it’s presumed that the construction of high-speed rail is also contributing a lot to the debt.
In addition, along with the construction of high-speed railways, there are the high-speed rail concept cities. These numerous unfinished projects have caused a great waste of farmland and social resources.
The design speed of China's high-speed railway is more than 200 kilometers per hour, and the maximum speed is 350 kilometers per hour. Public information shows that the weighted average unit cost of China's high-speed rail is: 129 million RMB/km for railways with a speed of 350 kilometers per hour; and 87 million RMB/km for speeds of 250 kilometers per hour.
In 2015, the transportation density of the Beijing-Shanghai high-speed rail was about 48 million passenger- kilometers, which was the highest in China's high-speed rails, while the Lanzhou - Xinjiang high-speed rail had the lowest transportation density, only about 2.3 million passenger-kilometers.
In addition, large-scale high-speed rail construction has severely distorted China's transportation structure.
Although the more high-speed railways are built, the more losses there are, Chinese officials have been increasing their efforts to build high-speed railways.
From top to lower levels, Chinese officials all attach importance to the so-called face-saving project.
In addition, the development of China's high-speed rail is also closely related to the Belt and Road initiative.
Now, China’s high-speed rail project not only seems to have failed to help realize its ambitions of global hegemony, it may also become a gray rhino that destroys China’s economy and eventually trigger a huge financial disaster.
https://www.youtube.com/watch?v=4wsMjxESAY0
2022-01-31 16:01