RAILWAYS

On Track for A Rail Revolution

The government is pouring billions of dollars into the nation's vast rail network to break passenger and freight bottlenecks that threaten further growth. The ambitious expansion promises new opportunities for China's impoverished millions and foreign investors alike

By David Lague/BEIJING

Issue cover-dated July 18, 2002

WHEN SHANGHAI'S first magnetic-levitation train service rockets between Pudong airport and the city centre in early 2004, passengers will glide over the 30-kilometre route at a sizzling 430 kilometres an hour. As Pudong's forest of new skyscrapers pass in an eight-minute blur, far out on the extremities of the vast Chinese rail network hundreds of steam locomotives will still be puffing and hissing between remote towns and villages. China's plan to have the newest railway technology operating alongside the oldest is a telling symbol of the nation's determination to arrest the decline of a once-dominant railway network.

With a massive $42 billion in spending the government plans to add 7,000 kilometres of new track to the sprawling 68,000-kilometre rail network by 2005. The goal is to clear major transport bottlenecks that threaten to choke further economic growth. And one side effect could be huge contracts for foreign companies selling next-generation rail technologies. "They are laying track faster than any other country in the world," says Bruce Murray, the Asian Development Bank's country director for China.

The investment is long overdue. As the Chinese economy boomed during the past two decades investment in the rail network failed to keep pace, leaving the ageing railways heaving under growing volumes of both freight and passengers. That is now changing. Railway reform is a key plank of a huge infrastructure spending programme designed to prop up economic growth, curb unemployment and build the foundation for longer-term prosperity.

An explosion in trucking and other transport services has complemented rail services on existing routes between major cities. But building new transport links connecting the undeveloped northern and western interior with the more prosperous eastern seaboard still represents a major challenge. In what can be likened to the 19th century golden era for rail in the United States, when railways linked the eastern and western seaboards and laid the foundations of a superpower, China is now betting that new east-west rail lines will be catalysts for an internal economic boom.

"With the majority of our manufacturers located in eastern China and most natural resources in the west, we need to greatly improve the capacity of our lines running east to west," Railways Minister Fu Zhihuan told a seminar for prospective U.S. equipment suppliers in Washington last year. With raw materials like coal, minerals and grain moving more efficiently towards the coast and, just as importantly, consumer goods heading back to population centres in the north and central west, the benefits of economic growth would be more evenly distributed.

In remote areas, the arrival of a rail line can help break a cycle of grinding poverty. The World Bank and the ADB have so far lent China almost $5 billion for rail construction, mostly to link remote communities with the national transport network. Engineer Randhir Soin, an expert on the Indian and Chinese rail systems, still marvels at the impact a railway can have on an isolated community. Almost immediately, entrepreneurs begin to open small businesses that feed off the new movement of goods and people. "The ripple effect is so huge it is unbelievable," says Soin, who retired in January after 13 years as a principal project engineer with the ADB in China. "If you want to get rich, get the railway to your door."

But financing that opportunity is taking a heavy toll on government coffers. The state invested about $6 billion in new track, rolling stock and upgrading work last year. A further $7 billion is earmarked for this year. Some analysts and senior Chinese officials are already warning that government deficit spending is reaching unsustainable levels and the authorities are gearing up to allow foreign investment in railways.

The railways have been one of the most tightly controlled areas of the planned economy but foreigners will be permitted to take a minority stake in cargo joint ventures from this year. Under World Trade Organization rules, foreigners can hold majority stakes in railway freight joint ventures from 2004, with all restrictions lifted after 2006. Passenger services will be closed to offshore investment. However, senior rail officials say China will welcome foreign investment in railway construction on long-term build-operate-transfer contracts.

One area in which foreign participation seems almost certain is the building of high-speed rail links between major cities. Already on the drawing board is a multibillion-dollar 1,450-kilometre high-speed link between Beijing and Shanghai that would cut the heavily patronized 14-hour trip to less than five hours. Construction is expected to be under way by 2005. Beijing also plans a $24-billion high-speed inland link between the capital and Guangzhou that would shave 14 hours from a 24-hour trip. Hong Kong is getting in on the act, too. The central government in January gave approval in principle for a proposal to build a high-speed link between the territory and Guangzhou via Shenzhen.

The performance of the $1.2 billion Pudong airport link could be crucial to decisions on which technology is selected for these longer routes and the role of foreign investors. A consortium of the German firms Siemens, ThyssenKrupp and Transrapid International is building the Pudong line in a 50:50 partnership with the Shanghai city government.

Transrapid, the builder of the trains, claims the wheel-less magnetic levitation, or maglev, system is the first major innovation in rail in the nearly two centuries since the first track was laid. Its trains will glide without moving mechanical parts on a magnetic cushion over special guide rails. With a start-up one-way fare of $7.25 and estimates that up to 93 million passengers will be carried annually, the project's initial investment could be recovered in two years. It will be the only commercial application of this technology in operation and will be closely watched around the world. If successful, it could put the Germans ahead when bidding starts for the Beijing-Shanghai contract. Feasibility studies of Japan's bullet-train technology and the French TGV system are also under way.

These new technologies, along with increased efficiency and integration with other transport systems, are crucial to restoring rail's fortunes. From the formation of the People's Republic in 1949, rail had a stranglehold on the movement of goods and people. But air, road and water transport emerged as serious competition in the late 1970s.

The growth of the road network, for example, has been little short of astonishing. In the early 1990s, China had no major long-distance expressways. A decade later the combined length of its expressways ranks second only to that in the U.S.

This expansion fuelled an explosion in road transport that exposed the shortcomings in the rail system, particularly for freight. (See story on page 28.) Railways are suited to the long-distance transport of bulk commodities like coal and grain but lack the flexibility or speed to deliver some finished or perishable goods. The absence of integrated road and rail networks at many of China's ports and manufacturing centres means rail has largely missed out on the lucrative ship container business. Most containers leaving factories are carried to ports on trucks.

Railway freight traffic increased an average of more than 3% a year from 1985 to reach 1.4 trillion ton-kilometres in 2000, according to official data. Passenger traffic more than doubled over the same period to 441 billion passenger-kilometres. China now ranks second after the U.S. in terms of passenger and freight traffic. But despite that steady growth, rail's share of the overall transport market fell sharply until the late 1990s. In 1990, rail carried more than 70% of total freight and over 53% of passengers. By 2000 just 51% of freight and 36% of passengers moved by rail, official data show. In 1994, the rail network fell into the red.

Beijing launched revival efforts in the early 1990s with moves to cut costs by slashing the vast 3.4 million-strong payroll. The authorities claim the workforce has been trimmed to 1.4 million with layoffs continuing. From 1998, the railway bureaucracy was also overhauled with more responsibility given to lower-level managers in an effort to boost efficiency and respond more effectively to market demands. Spending was increased to improve the frequency and speed of trains across a system known for its dawdling services, spartan carriages and insanitary toilets. As recently as 1997, freight trains crawled across the country at average speeds of about 30 kilometres per hour while passengers endured services that rattled along at 50 kilometres per hour on average.

The efforts are beginning to pay off. The government says the system returned to the black in 1999 and it has set a profit target of $60 million for this year. Services on passenger routes have unquestionably improved. "It is faster, cleaner and more comfortable," says Beijing teacher Yang Liqun, a regular long-distance train traveller. "It is definitely getting better." The ADB's Murray has also been a long-distance passenger. "If you look at the operations of the Chinese rail system, it's amazing," he says. "The trains leave on time, the ride is comfortable and you get to where you are going on time. The Chinese rail system stacks up against any other rail system in the world, which is amazing because it's a very big system."

Since 1997, speed on 13,000 kilometres of major lines has increased by an average of 25%. Services between Beijing and major centres like Harbin, Shanghai and Guangzhou operate at 140-160 kilometres per hour. Trains reach 200 kilometres an hour between the southern boom cities of Guangzhou and Shenzhen. For the first time since the reform period began, rail in 2000 increased its share of the total transport market.

Lachie McOmish, a former transport adviser to the Australian government, sees the improvement in China's rail services as powerful proof that rather than posing a threat, competitive road carriers are exactly what rail systems need. "Competition is wonderful for rail," he says. With heavy investment and ambitious plans, China is giving a resurgent rail network every chance to meet the challenge.