A Look at China’s High-Speed Rail Investments

china_speed_rail_onpage.jpgPresident 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 transportationinfrastructure—in the form of 41,000 miles of interstatehighways—enabled the rapid movement of people and goods across thenation 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 milesper hour or greater, and the country plans to build an additional10,000 miles of high-speed rail connecting all of China’s major citiesby 2020.

CAP experts experienced the high-speed rail firsthand during our recent fact-finding mission to China. We took the train from Beijing toTianjin, reaching a top speed of 205 mph and covering the 73-milejourney—roughly the distance between New York and Philadelphia—in lessthan 30 minutes. Stepping off the rail platform, it was hard not to get the feeling that China is racing ahead in investing in mass publictransit 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 in2012 and 75,000 by 2020. All of China’s provincial capitals have beenconnected 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 existingrail 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- toLong-Term Railway Network Plan is a new national high-speed railgrid 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 economicstimulus package announced in 2008 was allocated to infrastructureprojects, and a large portion was dedicated to high-speed rail, pushing forward many projects that were otherwise further down the projectpipeline. 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 socialsecurity fund council, and an investment arm of one of China’s largestprivately owned insurance companies. And there is some speculation that this consortium will seek capital market investors through amultibillion-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 commoncriticism is that the construction of rail infrastructure is veryexpensive and its operations may never be profitable. TheBeijing-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 thelower-income class because tickets for high-speed rail are moreexpensive 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, andhigh-speed rail figures prominently as part of the solution.

China’s floating population—rural citizens who have migratedtemporarily to urban centers in search of work or educationalopportunities—already accounts for more than 10 percent of itspopulation 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 passengerrail 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’sgrowing national economy since the early 1990s. Additional freightcapacity will not only facilitate domestic commerce, but also yieldadditional revenue that can offset the high costs of high-speed railconstruction.

Increased connectivity between provincial capitals will enhancecommercial 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-hourjourney by conventional rail down to four hours. The high-speed railnetwork will also reach out to cities in less developed western parts of China, stimulating economic activity there and helping to spread thewealth 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 theBeijing-Shanghai line alone created employment for 100,000 workers and engineers.

The benefits of high-speed rail are not limited to China’s domesticmarket. China is poised to reap the economic benefits from being an exporter of knowledge, technology, and capital for high-speedrail projects worldwide. Chinese companies are already buildinghigh-speed rail lines in Turkeyand Venezuela, and are in discussions with Brazil, Russia, Saudi Arabia, and Polandto build projects there. And the Chinese have most recently signedcooperation agreements with the state of California and General Electric to explore the feasibility of building, financing, and licensingtechnology 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 useof electric trains offsets the use of oil-based transportation such as automobiles and planes. Fares for high-speed rail are more expensivethan conventional rail or bus, but they are half the price of fares for flights and take only slightly longer to travel. The 314-mileZhengzhou-Xi’An high-speed rail line is already forcing some airlines tosuspendtheir flights, while the Beijing-Tianjin line that we took has ledto an 18 percent decline in bus trips. The additional freight capacity that results from passenger rail expansion can also replace morecarbon-intensive modes of heavy-duty trucking.

Electrification often requires coal in China, but electriclocomotives are much more efficient than oil-based locomotives and also provide the opportunity to utilize cleaner (and growing) sources ofpower from wind, solar, and biomass. As a result, increased use ofhigh-speed rail over automobiles and planes will reduce dependence onforeign oil, cut local air pollution and carbon emissions, and helpChina achieve its goal of a low-carbon economy.

The land use issues involved in rail compared to highways are alsonoticeably 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 hasbeen able to manage its costs in other ways. “The costs of Chinesehigh-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 ontime, and therefore avoids costly delays,” observes Will Freeman, aresearch analyst at Dragonomics, a Beijing-based industry research andadvisory firm.

Perhaps most significantly, state-owned banks’ ability to providemultibillion-dollar loans at low interest rates accounts for China’sability to scale up its infrastructure investments in a way no othercountry can. According to Freeman’s estimates, the costs of buildinghigh-speed rail are up to three times higher than conventional rail inEurope or Japan, but they are only one and a half times higher thanconventional rail in China.

Of course, building infrastructure projects quickly can createunintended 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 ofviaducts, tunnels, and bridges may mitigate local land-use changes, but it increases the system’s lifecycle carbon footprint due to the increased useof materials (particularly concrete and steel) and energy. The carbonfootprint of high-speed rail compared to other transportation modes alsodependshighly on ridership, providing another important reason, besidesprofitability, for employing competent operational management.

China’s philosophy: Import, digest, reinvent

The bigger picture of innovation and competitiveness shows thathigh-speed rail is yet another technological sector that demonstratesthe classic Chinese industrial innovation model of“import-digestion-reinnovation” at work. China’s train technology isstate of the art, but originally derived from French, German, andJapanese technology, and tweaked to adapt to domestic geographicconditions—although some have complained of unfair copying of foreign technology by theChinese. 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 importerof high-speed rail technology and operational know-how to being anexporter.

The commitment to create the largest market and export base forhigh-speed rail is also attracting world-class research and development capabilities. IBM announced last summer the opening of its GlobalRail Innovation Center in Beijing, where it will work with industry and universities to develop software solutions for high-speed railoperations.

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 generouslyfund the interstate highway system and aviation industry, perpetuatinghigh-carbon modes of transportation. There is only one high-speed railline in the United States—the Acela Express that runs from Boston toWashington, D.C., covering 456 miles in seven hours. The recently opened Wuhan-to-Guangzhou line in China, by contrast, covers 600 miles inthree hours.

Differences in political-economic structures and labor and resourcecosts between China and the United States may make it impossible for the United States to replicate the pace and scale of China’sinfrastructure investments, but it is important for the United Statesto pursue its own strategy to upgrade its transportationinfrastructure.

Fortunately, the current administration has laid down a sweeping vision that identifies 10 high-speed rail corridors—each between 100 to 600 miles inlength—across the United States. But actual federal funding for thisvision is a little more than$10 billion so far—a fraction of what China is spending, andcertainly 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 requirestate governments and the private sector to recognize the economic,social, and environmental benefits of high-speed rail and make greaterfinancial commitments. If the vision is not heeded, we will miss theopportunity to lay an important piece of what will be the foundationfor a more sustainable and competitive economy.

Special thanks to Nick Wellkamp, who coauthored this originalpost with me.

Photo credit:  All courtesy of Center for American Progress.

Image: We took the high-speed CRH3 train that runs between Beijing andTianjin. Technology for the CRH3, assembled in China, was originallyderived from Siemens’ Valero line of train technologies.

Original Article on The Green Leap Forward 


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