All aboard the China express
Published: 16 March 2010
Expanding rail network helps drive economic growth
Not so long ago, a rail journey in China was a recipe for misery, often involving unreliable timetables, lengthy delays, spartan conditions and poor or non-existent service.
Today, the county's railway network offers a clear view of China's dynamic future as a global economic powerhouse.
The scale of construction and size of investment will be unprecedented in China's railway history
For passengers, this means a comfortable, competitively-priced journey to most major cities. For the economy, it means freight can be moved around the country efficiently and cost-effectively, helping to drive growth. The importance of rail travel in China is reflected in the data for the recent Chinese New Year holiday which saw around 4.7 million passengers travelling by train every day.
As always, China is thinking big. The government plans to spend RMB5 trillion to expand its railway network to a total 120,000 kilometres by 2020, according to the railway ministry's long-term development plan, which was approved in 2004. Rail investment has more than doubled since Premier Wen Jiabao announced a huge economic stimulus package in November 2008.
As part of the plan, the Ministry of Railways earmarked RMB600 billion for investment in 2009, up from RMB350 billion the previous year.
"The scale of construction and size of investment will be unprecedented in China's railway history," Yang Zhongming, the head of the ministry's planning department, told the official People's Daily newspaper.
According to Hong Kong's South China Morning Post, analysts expect China to spend RMB600 billion on railway infrastructure, RMB250 billion on subway infrastructure, and RMB165 billion on rolling stock each year from 2011 to 2015.
With around 80,000 kilometres of rail track at the end of 2008, China had the world's second-biggest railway network after the US. This figure should rise to 110,000 kilometres in 2012 and 120,000 kilometres in 2020, if all goes to plan.
An important part of the mix will be the high-speed rail network which is still in its early stages but is already expected to become the world's largest by 2012.
Planned services include 350 kilometres an hour routes running from Shanghai almost 2,000 kilometres to Kunming, the capital of Yunnan province in the south, and 4,000 kilometres to Urumqi, the capital of Xinjiang in the north-west.
Important commercial powerhouses such as the Yangtze River Delta, the Pearl River Delta and northeastern China will all be part of the rapidly expanding network.
In 2007, high-speed rail lines totalled only 1,109 kilometres but this is projected to grow to 13,000 kilometres in 2012. According to the Ministry of Railways, high-speed railways will connect all of China's provincial capitals and cities with more than 500,000 citizens by 2020, serving more than 90 per cent of the population.
China is the world leader in high-speed rail
The first high-speed service, covering the 120 kilometres between Beijing and Tianjin, started in 2009. A 1,220-kilometre service connecting Wuhan in central China with Guangzhou, the capital of Guangdong in the south, started operating late last year, reducing travel time from more than 10 hours to three. The line will eventually connect Hong Kong to Beijing.
In 2012, the 1,318-kilometre Beijing-to-Shanghai service will cut travel time from 12 hours to four, making it quicker than air travel once check-in and transit time are factored in.
This has major implications for the country's airlines. China Southern and Air China are already slashing prices to compete with the new high-speed trains. They are right to be concerned.
In Europe, Germany, France and Spain have dominated high-speed rail use over the past 20 years, during which time the continent's airlines have seen their market share shrink. In Taiwan, passengers using high-speed rail doubled to 3.06 million in 2008, while the number of passengers on domestic flights dropped 22.5 per cent.
Indeed, China's high-speed rail technology is so advanced that the US conglomerate GE has confirmed it is in negotiations with the Ministry of Railways to use mainland know-how to build a high-speed rail network across America.
"We are going to bring high-speed rail technology from outside because there is no indigenous high-speed rail technology in the US," Tim Schweikert, the China president of GE transportation told the South China Morning Post. "China is the world leader in high-speed rail."
One of the side-effects of the rapid increase in investment China's rail network is that that China Railway Group, China Railway Construction and China Communication Construction have become the world's largest players in rail construction, building thousand of kilometres of track in China, Latin America, Africa and the Middle East.
HSBC equity analyst Ken Ho, who covers a number of infrastructure companies in China, believes these companies will enjoy a long period of growth because railway construction will continue to be the focus of transportation development in the 12th Five-Year Plan (2011-15) and investment in the industry is expected to remain robust this year.
Since the announcement of the stimulus package, investment in railway infrastructure has been strong and steady
"Since the announcement of the stimulus package, investment in railway infrastructure has been strong and steady," he said.
"Last year, except for a relatively slow third quarter, total investment on railway infrastructure has greatly accelerated and reached an unprecedented RMB600bn, up 78 per cent y-o-y.
"This year, the budget will be further raised to RMB700bn, up 16.7 per cent y-o-y. Without the stimulus package, the industry would not have experienced the fast growth that it has.
"Within our coverage, China Railway Construction (CRC: 1186.HK) and China Railway Group (CRG: 390.HK) are the two market leaders in railway infrastructure. They both have the scale and resources to take on mega-sized railway projects and have been direct beneficiaries of the infrastructure boom.
"Currently, we rate them Neutral because CRC's 3Q 09 margins showed a continued decline and CRG experienced volatility in the reported order flow. Going forward, the Ministry of Railways' order flow will continue to be a driver of key earnings and share prices for the sector."
As with Britain during the Industrial Revolution between 1780 and 1840, China's massive spending on railway construction is helping to fuel the rise of a global economic power.
Ken Ho
Ken Ho joined HSBC in late 2004, where he now heads the Regional Infrastructure research team.
He has covered China for more than 10 years, serving for six of those years as strategist and head of China research for a leading investment bank.
On the right track
- 1913: China builds first modern highway
- 1949: Total road length open to traffic is 80,000 kilometres
- 1988: First expressway - 11.5 miles(18.6km) long - built near Shanghai
- 1998: Major construction of expressways begins
- 2000: Number of private cars: 6.25m
- 2005: Number of private cars: 17m
- 2006: Expressways total 40,000 kilometres
- 2020: Expressways scheduled to total 85,000 kilometres
China rail: Key numbers
| Year | 2008 | 2010 | 2012 | 2020 |
| Railway track (km) | 80,00 0 |
90,00 0 |
110,0 00 |
120,0 00 |
| Metros (km) | 813 | 1,500 | 2,000 | 4,500 |
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