"A look at Chinas high-speed rail investments"
This is a 2010 piece that seems timely today given Obama’s efforts to jump-start high speed rail in America and the response by many conservative governors to block that effort (see “Passenger rail is not in Ohio’s future”: New GOP governors kill $1.2 Billion in high-speed rail jobs
Guest bloggers Julian L. Wong and Nick Wellkamp walk us through China’s aggressive investments in high speed rail.
President Dwight D. Eisenhower put a down payment on the U.S. economy in 1956 by signing the National Interstate and Defense Highways Act. This wise investment in a modern, transformative transportation infrastructure””in the form of 41,000 miles of interstate highways””enabled the rapid movement of people and goods across the nation and was vital to our astounding economic progress for the next 50 years.
Today, it is China that is leading the world in a key next-generation transportation technology: high-speed rail. China has already built 4,000 miles of rail featuring trains with average speeds of 120 miles per hour or greater, and the country plans to build an additional 10,000 miles of high-speed rail connecting all of China’s major cities by 2020.
CAP experts experienced the high-speed rail firsthand during our recent  fact-finding mission to China. We took the train from Beijing to Tianjin, reaching a top speed of 205 mph and covering the 73-mile journey””roughly the distance between New York and Philadelphia””in less than 30 minutes. Stepping off the rail platform, it was hard not to get the feeling that China is racing ahead in investing in mass public transit infrastructure while the United States is lagging behind in the race to develop clean energy industries.
China’s $300 billion investment in high-speed rail
China already boasts a rail network that, including both standard and high-speed rail, is more than 53,000 miles long. And China plans for that network to reach 68,000 in 2012 and 75,000 by 2020. All of China’s provincial capitals have been connected by rail since the 1960s, and unlike the United States, rail is already a major mode of intercity passenger transportation.
The country began planning its nationwide network of high-speed rail in the early 1990s. And China began implementing a series of six “speed-up” campaigns in the late 1990s to modernize its existing rail infrastructure by increasing the speed and capacity of its lines. It also plans to build new passenger-dedicated high-speed rail lines. Indeed, the centerpiece of China’s Medium- to Long-Term Railway Network Plan is a new national high-speed rail grid overlaid onto the existing rail network. The new grid would consist of four north-to-south corridors, four east-to-west corridors, and two additional intercity lines, all totaling some 7,500 miles when completed in 2020.
China will spend an estimated $300 billion to meet its 2020 goal for high-speed rail. Nearly 40 percent of China’s $586 billion economic stimulus package announced in 2008 was allocated to infrastructure projects, and a large portion was dedicated to high-speed rail, pushing forward many projects that were otherwise further down the project pipeline. Planners are now beginning to look for new sources of capital. The Beijing-to-Shanghai route that will open next year, for example, is owned and managed by a consortium that includes the Ministry of Railways, China’s national social security fund council, and an investment arm of one of China’s largest privately owned insurance companies. And there is some speculation that this consortium will seek capital market investors through a multibillion-dollar initial public offering in the near future.
Why it makes sense for China to invest in high-speed rail
Some have questioned the economics of high-speed rail. A common criticism is that the construction of rail infrastructure is very expensive and its operations may never be profitable. The Beijing-Tianjin line, for instance, is reportedly losing some $102 million per year. Another criticism is that high-speed rail tends to benefit the wealthier population more than the lower-income class because tickets for high-speed rail are more expensive than those for conventional rail or bus transportation.
But there are at least three compelling reasons to justify this heavy investment:
1. Increasing demands for human mobility
China is experiencing the biggest wave of migration in human history, with an estimated 300 million people relocating from rural to urban areas over the next two decades as part of an urbanization-led economic growth strategy. The country is facing a long-term challenge of meeting a sustained and unparalleled demand for all modes of transportation services, and high-speed rail figures prominently as part of the solution.
China’s floating population””rural citizens who have migrated temporarily to urban centers in search of work or educational opportunities””already accounts for more than 10 percent of its population of 1.3 billion. And there is a mad crush among these migrants every spring festival to hop on existing bus and rail lines to return to their home villages to be with their families for the most important Chinese cultural festival of the year. Migrant workers may not be able to afford high-speed rail fares at present, but expanded passenger rail capacity will eventually lead to more affordable prices over time.
2. Promoting economic development
A major reason for the push to build passenger-dedicated lines is to free up existing lines for freight capacity, which is sorely needed and has been unable to keep pace with the logistical demands of China’s growing national economy since the early 1990s. Additional freight capacity will not only facilitate domestic commerce, but also yield additional revenue that can offset the high costs of high-speed rail construction.
Increased connectivity between provincial capitals will enhance commercial interactions and stimulate the economy. An 800-mile line from Beijing to Shanghai””roughly the distance between Chicago and New York””will open next year, cutting what used to be a 10-hour journey by conventional rail down to four hours. The high-speed rail network will also reach out to cities in less developed western parts of China, stimulating economic activity there and helping to spread the wealth of China’s economy.
High-speed rail infrastructure also increases demand for commodities and creates hundreds of thousands of jobs in the construction, steel, cement, engineering, and manufacturing sectors. Construction of the Beijing-Shanghai line alone created employment for 100,000 workers and engineers.
The benefits of high-speed rail are not limited to China’s domestic market. China is poised to reap the economic benefits from being an exporter of knowledge, technology, and capital for high-speed rail projects worldwide. Chinese companies are already building high-speed rail lines in Turkey and Venezuela, and are in discussions with Brazil, Russia, Saudi Arabia, and Poland to build projects there. And the Chinese have most recently signed cooperation agreements with the state of California and General Electric to explore the feasibility of building, financing, and licensing technology to build high-speed rail lines in California.
3. Promoting energy security and sustainability
China’s thirst for oil is growing, in no small part due to its expanding auto and aviation sectors. Half of its oil comes from foreign sources. And use of electric trains offsets the use of oil-based transportation such as automobiles and planes. Fares for high-speed rail are more expensive than conventional rail or bus, but they are half the price of fares for flights and take only slightly longer to travel. The 314-mile Zhengzhou-Xi’An high-speed rail line is already forcing some airlines to suspend their flights, while the Beijing-Tianjin line that we took has led to an 18 percent decline in bus trips. The additional freight capacity that results from passenger rail expansion can also replace more carbon-intensive modes of heavy-duty trucking.
Electrification often requires coal in China, but electric locomotives are much more efficient than oil-based locomotives and also provide the opportunity to utilize cleaner (and growing) sources of power from wind, solar, and biomass. As a result, increased use of high-speed rail over automobiles and planes will reduce dependence on foreign oil, cut local air pollution and carbon emissions, and help China achieve its goal of a low-carbon economy.
The land use issues involved in rail compared to highways are also noticeably lower, achieved largely by building the high-speed rail lines on new viaducts, bridges, and tunnels.
Land-use issues in high-speed rail
Rail infrastructure that relies on large numbers of viaducts, tunnels, and bridges raises overall construction costs, but China has been able to manage its costs in other ways. “The costs of Chinese high-speed rail lines are the lowest in the world because such a massive build-out creates an economy of scale, labor and basic material costs are relatively low, and China generally finishes building lines on time, and therefore avoids costly delays,” observes Will Freeman, a research analyst at Dragonomics, a Beijing-based industry research and advisory firm.
Perhaps most significantly, state-owned banks’ ability to provide multibillion-dollar loans at low interest rates accounts for China’s ability to scale up its infrastructure investments in a way no other country can. According to Freeman’s estimates, the costs of building high-speed rail are up to three times higher than conventional rail in Europe or Japan, but they are only one and a half times higher than conventional rail in China.
Of course, building infrastructure projects quickly can create unintended consequences. Construction of the Guangzhou-to-Wuhan express line, for example, along with an overextraction of groundwater, caused nearby land to sink, damaging 1,000 residents’ properties. And the use of viaducts, tunnels, and bridges may mitigate local land-use changes, but it increases the system’s lifecycle carbon footprint due to the increased use of materials (particularly concrete and steel) and energy. The carbon footprint of high-speed rail compared to other transportation modes also depends highly on ridership, providing another important reason, besides profitability, for employing competent operational management.
China’s philosophy: Import, digest, reinvent
The bigger picture of innovation and competitiveness shows that high-speed rail is yet another technological sector that demonstrates the classic Chinese industrial innovation model of “import-digestion-reinnovation” at work. China’s train technology is state of the art, but originally derived from French, German, and Japanese technology, and tweaked to adapt to domestic geographic conditions””although some have complained of unfair copying of foreign technology by the Chinese. As a result, Chinese rail companies now reportedly have 940 registered patents. In just over a decade since its first “speed-up” campaign, China is now ready to move from being an importer of high-speed rail technology and operational know-how to being an exporter.
The commitment to create the largest market and export base for high-speed rail is also attracting world-class research and development capabilities. IBM announced last summer the opening of its Global Rail Innovation Center in Beijing, where it will work with industry and universities to develop software solutions for high-speed rail operations.
What does this mean for the United States?
The U.S. federal government for most of the past decade has underinvested in its national passenger rail network while continuing to generously fund the interstate highway system and aviation industry, perpetuating high-carbon modes of transportation. There is only one high-speed rail line in the United States””the Acela Express that runs from Boston to Washington, D.C., covering 456 miles in seven hours. The recently opened Wuhan-to-Guangzhou line in China, by contrast, covers 600 miles in three hours.
Differences in political-economic structures and labor and resource costs between China and the United States may make it impossible for the United States to replicate the pace and scale of China’s infrastructure investments, but it is important for the United States to pursue its own strategy to upgrade its transportation infrastructure.
Fortunately, the current administration has laid down a sweeping vision that identifies 10 high-speed rail corridors“”each between 100 to 600 miles in length””across the United States. But actual federal funding for this vision is a little more than $10 billion so far””a fraction of what China is spending, and certainly insufficient to cover the costs of all 10 projects.
The federal funding is designed to serve as a catalyst for nonfederal sources of funding. But making that vision a reality will require state governments and the private sector to recognize the economic, social, and environmental benefits of high-speed rail and make greater financial commitments. If the vision is not heeded, we will miss the opportunity to lay an important piece of what will be the foundation for a more sustainable and competitive economy.
– Julian L. Wong (then of CAP, now at DOE) and Nick Wellkamp
JR: The other reason to invest in high-speed rail is that airlines are the first industry to be wiped out by peak oil.