China is far from immune from the financial crisis that greeted the dawn of 2009 but nevertheless sees massive expenditure on its rail network as money very well spent.
For the vast economy as a whole, its export markets around the world seem reluctant to expand trade or even maintain previous levels. Although its economy is forecast by the World Bank to expand by 7.5% over the coming year – a figure that would be welcome in most countries – this is China’s lowest rate for 20 years.
As exports of finished goods are in a long enough decline to cause concern, the Chinese government is keen to allocate resources in ways that will stimulate domestic demand. As elsewhere, interest rates have been cut in the hope of reversing decline but more direct pump-priming is apparent with transport. For the railways, this translates into a massive $586bn investment programme announced by PRC President Hu Jintao in December 2008. This has the expectation of network improvements and will also underpin the economy’s ability to respond as and when the customers return.
The railroad to recovery
China-watching was boosted by the 2008 Olympic Games but the year was also marked by the opening of the 350km/h-capable Beijing-Tianjin line. Joining the very high-speed club with a 30-minute timing over a 72-mile (115km) line is but a sideshow of what is in store. The project’s estimated $2bn cost was less than 0.5% of the amount pledged in the president’s December announcement.
The potential for rail expansion in China is immense. The country stretches 3,000 miles (4,800km) from north to south and 2,000 miles (3,200km) from east to west. That makes its 3.7 million square mile surface slightly greater than that of the US. Even allowing for vast tracts of sparse population in the west, China was a late starter relative to other countries where rail is concerned. Little was built in the 19th century and well over half of the present system is less than 50 years old. Since then, China’s rail freight tonnage has increased 25-fold.
Despite its relative youth, the infrastructure is far from modern in a technological sense. Away from attention-grabbing projects like the 1,318km (819-mile) Beijing-Shanghai high-speed line that began in 2008, there is ample scope for improvements such as double tracking, raising weight restrictions and new more direct lines. Under a third of the present network is electrified and pollution is a dire national problem – changing from diesel to electric would make an immense impact.
China’s railways also carry a disproportionate amount of the world’s goods relative to the system’s size. In some ways the economic climate should help the railways’ cause. Recession inevitably means a reduction in key traffic flows such as finished goods to export gateways.
The same is true for bulk imports in part reflected by Australia, a key trading partner, reducing mineral earnings expectations for 2008/09 by a massive 13.5%. In spite of a near-5% increase in tonnage carried during the previous year, the Chinese Ministry of Railways sees no prospect of freight expansion for 2009.
Conversely, although falling overseas demand cuts freight loadings, now is seen as the right time to stimulate the home economy with better rail facilities to increase productivity. An order was signed with Bombardier in 2007 for 500 high-power freight locomotives, one of several fields in which the manufacturer is working with a Chinese partner to supply modern equipment.
Passengers filling the vacuum
The freight downturn has directed more attention to the domestic passenger market and the Ministry expects passenger journeys to increase by 10% to over 1.6 billion during 2009. Overlapping official announcements do not make it easy to isolate the extent of entirely new projects and 150 were said to already be underway during 2008.
Nevertheless, at end-2008 the railway’s deputy minister declared an aim to expand the 79,000km network by just over 50% to 120,000km (80,000 miles) by 2020.
China’s rail map shows a concentration of resources in the eastern half and with the greatest density in the north-eastern quadrant.
Although new lines will give access to more remote western regions and for bulk freight like coal in Shanxi province, most new projects follow the economic activity concentrations of the east.
In an era of relative loosening of government control, the railway remains very much an instrument of the state. For much of the immense population, its workings have great effects on everyday life. Failings and limitations in the system during the temporary population migrations around the 2008 Chinese New Year made international headlines and highlighted the railway’s importance, reaching as it did into areas of social control.
Sustaining employment levels is another influence on civil order. The 2008/09 rail expansion announcements are held out as directly supporting six million jobs – although this seemingly huge figure needs placing in the context of a working population growing at around 5.5 million a year. Even in the boom times of 2004, 11 million were officially listed as unemployed.
Big opportunities or long-term hazard?
At first sight, China’s railway expansion may seem a great opportunity for the world’s equipment suppliers and so it may prove. In previous rail expansion and modernisation schemes, China purchased from many foreign companies, although this was often in relatively small terms as deals tended to depend on a high level of local production.
This was the case with Siemens, Kawasaki, Bombardier and Alstom. As with the other Asian rail giant India, previous clauses in deals with these players has protected the domestic manufacturing industry. There are now concerns, however, that China may go further and ‘steal’ this imported overseas technology to export it back into the world’s rail markets.
This view, expressed by Alstom chief executive Philippe Mellier to the Financial Times in January 2009, brought a denial from China’s Ministry of Railways and an assertion of the country’s own prowess in technological advances, particularly in high-speed rail. But the issue goes further. At least 30 cities in China have a population of over two million and urbanisation is set to continue. China has by far the biggest foreign currency reserve, creating the potential for the greatest ever expansion of metro and light rail systems.
At first glance an enticing market opportunity for the likes of Bombardier, Alstom and Siemens, the counterview is that the demand could underpin a domestic industry and in turn undercut established suppliers throughout the world.