China’s new high-speed rail system is proving to be financially viable. The 2,298km Beijing to Guangzhou trip that used to take 22 hours, now takes just eight hours since the opening in December of the high-speed line between the capital and the southern commercial hub.
“The Beijing-Guangzhou high-speed railway connects the economic region around Beijing with the Pearl River Delta. Considering the population and levels of development of the two economic zones, they are undoubtedly important engines for China’s economy, therefore improving the transport system will definitely increase exchanges between the two in terms of investment, talent and information,” he said.
Another showcase route is the Beijing to Shanghai route, which covers 1,318km and runs 90 pairs of trains daily, with the trip taking four hours and 48 minutes.
China now has 9,356km of high-speed railways.
In 2015 China will have 18,000km of high speed rail.
The plan is to expand this to 50,000km by 2020.
The top price for a ticket from Beijing to Guangzhou is more than 2,000 yuan (€235), which is about the same price as a flight.
Mainland airlines experienced turbulence at the turn of the year, posting losses for three consecutive months due to low air fares and competition from high-speed railways.
The impact from high-speed railways on passengers' air travel demand has been growing.
"The diversion to high-speed trains has become more and more serious as the memory of the high-speed-train tragedy in Wenzhou in 2011 fades out," said Geoffrey Cheng, the head of transport sector research for greater China at MF Global Hong Kong.
In response to the long-anticipated impact from high-speed rail, mainland carriers have adjusted their flight schedules by cutting short-haul routes while increasing long-haul services.
Air China, for example, is pressing hard to increase its market share in Europe, announcing Beijing-Geneva and Chengdu-Frankfurt flights this month.
High Speed Rail Enables Super City Clusters in China
Morgan Stanley had a 64 page analysis of the economic impact of high speed rail in China. They like companies involved in internal tourism in China (car rental companies, hotel chains and other businesses that will benefit from cheap and fast travel. China has raised the target of the 2020 high speed rail network from 30,000 kilometers 3 years ago to 50,000 kilometers. This means more smaller cities will be connected and joining the upper tier areas.
As the China HSR system spreads out and ramps up capacity, regional economic dynamics will change with it. The HSR’s most significant geographical economic impact will be the creation of connected metropolitan areas, or the super-city clusters (SCCs), because of its mass-transporting capacity at very high ground speeds (about 250 to 350 kilometers per hour), basically significantly multiplying a comuter's traveling distance within a fixed time period. Traveling to neighboring cities on HSR will take the same amount of time as traveling across a large city in a car. Eventually we believe that cities within the same cluster, connected by HSR grid, will no longer be conventional stand-alone cities. They will become like huge business-and-life districts in a very large metropolitan area, with active economic interactions.
Will the China HSR project be sustainable? This is clearly a valid question to ask. The operating capital required for such a mega project will be substantial. Our transportation analyst Edward Xu and capital goods analyst Kate Zhu believe that on average every 1,000 kilometers of China HSR will require Rmb4.5 billion per year in operating cash to function (this includes maintenance, parts replacement, and day-to-day operational costs).
On the other hand, the operating revenue, based on our ticket price estimate (using the same per-thousand-kilometer price to per-capita GDP ratio on the eastern portion of the national grid), per-thousand kilometer revenue will be around Rmb6.5 billion per year. This translates into a national operating cash surplus of Rmb2 billion per year, which should be able to cover most, if not all, of the interest expenses.
Many economically challenged cities in west and central China will be revitalized because of the hub effect created by the HSR system. Some cities will even see passenger flow growing by as much as 10 times in the coming decade, making them strategically important targets for many industries such as hotel, catering, logistics, and properties.
We believe by 2015, city clusters with travel radii of three hours will start to take shape in China. By 2020, there will be six such city clusters taking shape, overlapping with each other throughout most of China except the northwest and southwest. These city clusters will cover about 70% of the Chinese population and account for about 75% of China GDP.
HSR and Tourism
HSR technology will fundamentally change the experience of leisure travel in China, reducing the time and cost involved for travelers and increasing the frequency of leisure trips. While China is aleady a main destination for international travelers, within China the domestic tourism industry is still at an early stage. Per capita, the Chinese make only 1.6 domestic trips every year, compared with 4.6 trips per capita for Americans. In addition, tourism industry revenue accounts for about 4.0% of GDP in China. We believe that by 2015 the average domestic trips per capita in China will grow to 2.4 trips a year and that the tourism industry will account for 4.5% of GDP, based on strong economic growth and improvement in China’s infrastructure. The main improvement, we believe, is the build-out of China’s HSR
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