Profitable or Not, China Doubles Down on Investments in New Metro Systems

from the Transport Politic blog:


Profitable or Not, China Doubles Down on Investments in New Metro Systems

Yonah Freemark
September 11th, 2012





With China’s growth slowing — a product of internal economic changes as well as the continued poor performance of the U.S. and Europe — the country’s government has decided to accelerate investments in its cities’ rapid transit networks as part of a larger transportation infrastructure program. About $127 billion (or 800 billion yuan) is to be directed over the next three to eight years to build 25 subways and elevated rail lines as a stimulus whose major benefit will be a increase in mobility for the rapidly urbanizing nation.

Though China’s high-speed rail network (now the largest in the world) has garnered most of the headlines when it comes to transportation there, the nation’s investments in urban rail have been just as dramatic and serve far more people on a daily basis. Its three largest metropolitan areas — Guangzhou, Shanghai, and Beijing — feature the world’s fourth, fifth, and sixth most-used transit systems, providing more than five million rides each daily, more than similar networks in New York or Paris. Most of these cities’ lines opened since 2000.

The high ridership of the lines that have been built thus far, however, have not brought operational profitability to these systems, as Stephen Smith highlighted in an article this week. On Shanghai’s very extensive system, just one of eleven lines are able to cover their operations and maintenance costs — let alone pay back initial capital expenses used to build the lines. Meanwhile, construction costs have increased and cities paying for their completion have had to scale back their ambitions.

Yet the government does not accept the premise that a transit network that requires subsidies is necessarily a problem, at least based on its willingness this month to extend advance (and therefore heavily subsidized) loans to municipalities building transit lines. In general, the new national aid, which comes in the form of very reduced borrowing costs, will allow for the fast-tracking of projects already in the pipeline, much as Los Angeles has hoped to do with its transit projects. On average, 42% of financing will be directed from local governments, with the rest financed by banks, all benefiting from the lower bond rates. Costs will be eventually covered through long-term tax revenue. ..................(more)

The complete piece is at: http://www.thetransportpolitic.com/2012/09/11/profitable-or-not-china-doubles-down-on-investments-in-new-metro-systems/