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May 04, 2011

China High Speed rail impact on China Aviation and China versus US Transportation Spending

China spending over $250 billion per year on transportation

China plans to spend at least $1.3 trillion over the next five years to ease transport and freight bottlenecks, creating a windfall for companies such as Daqin Railway Co and Anhui Expressway Co.

China has spent $569 billion on fixed-asset investment in railways and roads over the past two years. That may help to more than double the country's share of world exports to 23 percent in the next decade, according to China International Capital Corp economist Zhang Zhiwei.

Over the next five years China will spend as much as 3.5 trillion yuan on railway construction, 750 billion yuan on rail rolling stock, 3.5 trillion yuan to 4 trillion yuan on highways, 300 billion yuan to 350 billion yuan on airports, and 900 billion yuan on ports, according to Macquarie.

China High Speed rail impact China Aviation

The nation's 2 trillion yuan in spending on a high-speed rail network will give it almost as much track by next year as the entire rest of the world, even before the 16,000-kilometer network is completed in 2020. More than 7,000 kilometers of track have already been laid and another 6,000 kilometers are scheduled to open by 2012.

Some in the US are making a big deal that Chinese bullet trains will be slowed from 220mph to 190mph as of July 1st. The reduced speed will allow for safer travel as well as a possibility of greater variation in ticket prices for travelers. Amtrak trains travel at 80 mph or less. European high speed rail averages 130-170 mph.



Sample of China high speed rail ticket prices

Beijing–Shanghai (high speed line opens June 2011):
1st class seat ¥409 (US$63) only found on day-time trains;
2nd class seat ¥327 (US$50)

The USD33 billion high-speed rail link on the lucrative Shanghai-Beijing sector is scheduled to be opened in Jun-2010. The rail link, which commenced construction works in Mar-2008, will reduce travel time between the two major cities from 14 hours to just four hours and is expected to transport more than 80 million passengers one way.

Some estimates put the loss in revenue for China’s aviation industry (from reduced traffic and price pressure) at up to CNY10 billion (USD1.5 billion) in 2012, or 3-4% of the total.

CAAC Director Li Jiaxiang stated some 50% of flights less than 500 km in length could become unprofitable as a result of competition from high-speed trains and around 20% of flights of between 800 and 1000 km could also run at a loss for the same reason. But sectors above 1500 km are not likely to be threatene

Roundtrip airfare between Beijing and Shanghai has been US$375-395 High-speed train tickets are selling for approximately 40% less than current air fares.

China’s airlines, in reaction to the threat of high-speed rail, are examining new route opportunities as the impact of high-speed rail on some ‘bread-and-butter’ Mainland Chinese domestic routes becomes apparent. As part of this, the nation’s ‘Big Three’ carriers are increasing the pace of international expansion. Chinese airports are likewise having to turn their attention to new opportunities, particularly offshore.

Yet, the US spending on transportation infrastructure is not that much less than what China is spending.

Guotai Junan Securities recently predicted that high-speed rail could capture between 1.3% and 5.3% of domestic airline passengers p/a by 2014. First Capital separately forecast that airline revenues would decline by between 3% and 7.9% due to shrinking demand. China Minzu Securities, while downplaying the impact of high-speed railways on airlines, stated up to 9% of passengers could shift from air to rail transport by 2016.

US Federal and local government spending - how much bang for the buck?
CBO analysis up to 2007 of US federal, state and local spending on transportation and water infrastructure. The US spent about $250 billion per year since 2000 on transportation infrastructure. The new federal budget for 2012 will boost that by about $50 billion to catch up on delayed maintenance.

The US budget request for the department of transportation for 2012 is $128 billion

* It proposes $556 billion for a six-year surface transportation reauthorization proposal that invests in America’s future, creates jobs, and reforms how Federal dollars are spent. It reflects a need to balance fiscal discipline with efforts to expedite our economic recovery and job creation.

* As part of the surface transportation plan, boosts funding by $50 billion in the first year to create hundreds of thousands of jobs in industries suffering from protracted unemployment.

* Provides $8 billion in 2012 and $53 billion over six years to improve passenger rail service and expand capacity toward reaching the President’s goal of providing 80 percent of Americans with convenient access to a passenger rail system, featuring high-speed service, within 25 years.

* Invests $30 billion in a National Infrastructure Bank to provide loans and grants for projects of regional and national significance, supporting economic competitiveness.

* Supports implementation of the NextGen Air Traffic Control System at $1.24 billion to improve efficiency, safety, capacity, and environmental performance of the aviation system.

• Federal Highway Administration: $70.5 billion is requested to rebuild our roads and bridges.

• Federal Transit Administration: $22.4 billion is requested to support public transit.

• Federal Railroad Administration: $8.3 billion is requested to support passenger rail including development of high-speed passenger rail. Also, $1-2 billion a year goes to prop up Amtrak. During FY 2010, Amtrak welcomed aboard more than 28.7 million passengers. So the per passenger subsidies are about $30-70 per passenger trip.

• Infrastructure Bank: $5 billion is requested to provide credit assistance in the form of grants and loans to leverage transportation dollars.

• Federal Aviation Administration (FAA): $18.7 billion is requested to maintain our Air Traffic Control System. $1.2 billion of this request supports the ongoing NextGen initiative that will modernize the Air Traffic Control system.

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