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

» Central government approves 25 new rail projects in cities across the country, worth hundreds of billions of dollars of new construction.

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.

In addition to funding for Shanghai and Guangzhou to extend their networks, other cities such as Xiamen, Taiyuan, Shijiazhuang, and Lanzhou have been offered national aid. By 2020, China will have 40 cities with metros extending 7,000 route kilometers, more than five times what exists in the United States today. The map below shows where new lines are being constructed, some with and some without help from the central government.

Chinese metro rail system development. Updated 11 September 2012.

Is the Chinese investment in metros “worth” it? Unlike other countries, China has chosen to de-prioritize cheaper tramway or bus rapid transit systems (though certain BRTs, such as Guangzhou’s, have been very popular), despite the fact that the cost of building subways there has risen to almost the level experienced in developed countries. On the other hand, China’s cities are often larger and denser than their Western counterparts; of the cities planning to build metros, all have more than a million people in their respective regions and most more than three million. Munich, Germany, a city with a very extensive and well-used rapid transit system (and one that most Westerners would not question), only has about 2.6 million people in its metropolitan area.

Does the fact that new Chinese metro systems require operational subsidies pose a problem? It depends on your perspective. From a fiscal point of view, long-term operational aid will impose heavy burdens on local taxpayers, just as is true in U.S. and European cities. This is especially a problem because Chinese cities have intentionally set fares at very low levels (just 2 yuan a ride in Beijing), making it impossible to cover costs. Should China, with relatively low labor costs,* be in this situation?

It seems more likely that Chinese officials recognize that the metro investments, in addition to offering an important economic stimulus, provide positive externalities that outweigh the subsidies that will be required to maintain the systems. By setting fares low, the metro lines are able to attract higher ridership and passengers from across the income spectrum. Even in the densest, most-packed city centers, metro systems allow largely congestion-free mobility that is able to handle far more people and provide faster service than equivalent tramway or BRT programs. There is a reason these projects have proven so popular among China’s citizens. The transportation benefits they offer certainly contribute to economic growth in the center of the cities they serve and likely limit the suburbanization of jobs.

In combination with efforts in cities like Shanghai to restrict automobile use through license plate restrictions, spending on new metros will encourage a huge percentage of the population to remain public transit users, rather than switch to private cars even as incomes increase. Developing countries that have invested less in their rapid transit networks (Bangkok’s 35 miles of lines serving a metropolitan area of 12 million inhabitants comes to mind) have failed their populations by offering them little alternative to automobile use and thus encouraged pollution and road congestion — two problems that already plague China’s cities.

Of course, China’s investment in new transit has not meant a shutdown on road capacity projects. The National Development and Reform Commission (which also approved the metro plans) announced last week that a large amount of funding will also be directed to new highways, leading to the eventual construction of 1,254 miles of new roads.

* On the other hand, the country’s per capita growth has been sensational; it is rapidly adopting the norms of wealthier countries.

Image above: Shanghai’s Line 3 Metro at Caoxi Road, from Flickr user Augapfel (cc)

14 Comments | Leave a Reply »
  • nbluth

    Thanks for this, that was a really strange Atlantic Cities piece. Still don’t understand what it was trying to argue.

    • Tom

      It was trying to argue that China should stop building subways. Just like the anti-HSR crowd was arguing a while back that China should stop building high-speed rail.

  • Ocean Railroader

    This shows China is very smart in what there people need think of what the local people in these cities felt like when they had to live in these very crowded cities with good subway service forcing them to take over crowded buses and jammed packed worn out commuter trains. If I where a county that was in their shoes I would make putting in a modern subway systems in all of my major cities the minute I started building up my economy. Other wise the county would be stuck with the dangerous old packed trains and buses like you see in other third world counties with people hanging out the windows and on the roofs of the trains and buses. Also in this case the government is doing it’s job to allow people easier access to help people get to work on time and spent less time getting to work. Not to mention people having a modern subway system to travel on helps cut down on crime and unsafe travel systems before these great systems where build. Think of what traveling around in these cities must have been like before these systems where built it’s money well spent and it helps the most people.

  • Nathanael

    China’s economy is managed by people with an “infrastructure Keynesian” attitude.

    Which turns out to be a pretty good set of policies. It’s worked for an awful lot of countries.

  • Donk

    When I was in Beijing in 2005, I was pretty disgusted with all of the new roads and freeways going up. Its nice to see that the Chinamen have learned from the West’s mistakes and are prioritizing transit. I wish they would go back to the Hutongs and bikes of the pre-2000s, and jettison the roads, cars and pollution in favor of transit. Cars just don’t make sense in China.

    (Yes Walter, I know that Chinamen is not the preferred nomenclature).

    • Andre L.

      That is a very condescending view. Most of Eastern China is very humid and biking leaves you sweaty and unkempt.

      They are not building subway INSTEAD of highways, they are investing in all sorts of new infrastructure.

      • Donk

        What, so should all 3B people in China and India own cars? It is just not possible for their infrastructure to sustain this, let alone the earth. Instead of burying their heads in the sand, maybe those two countries should come up with novel, customized solutions that actually work for them. Building freeways is not the solution.

        This is going to have involve lots of mass transit, with emphasis on the word “mass”. An each individual will have to get around on something with a smaller physical and environmental footprint, whether it is a skateboard, bike, motorbike, or segway. Once somebody figures out a model that works for overpopulated cities in China or India, then maybe some of the really chaotic places, like Jakarta, Ho Chi Minh City, or Dhaka can start to follow this model.

        • Andre L.

          Owning a car doesn’t mean using it for daily work commute, and using a car doesn’t necessarily mean owning one full time.

          I think cars are part of the transportation solution, for things like holidays in rural areas, irregular pattern trips, certain professions… and highways are part of a healthy infrastructure mix on any country that wants to be developed.

          I’m kinda tired of this “war on roads and car” mentality as if transportation were a matter of EITHER instead of AND.

          • Donk

            I am also tired of the war on the car mentality…in places where individual cars make sense, like the U.S., with a significantly lower population density than China and India.

            My only beef here is that, if you were given a clean slate, ie no infrastructure, how would you design a transportation system for a place that has billions of people? Aren’t there any better ideas out there? I realize that I am being unrealistic here, as middle class people in India and China are demanding cars, and so cars and freeways is what they will get.

          • peaton

            Not to take the bate, but I really don’t think the war on car car label makes any sense. There is now a discussion about transportation alternatives. Road building has very known drawbacks (e.g. Jevon’s law, public health, and pollution) and also known benefits. The idea that supporting policy that promotes some shift of the trip-share total from totally car oriented to more transit/walking oriented is equivalent to a “war” is specious. Policy continues to favor automobile travel. I’m not saying that is necessarily bad, but questioning transportation policy and wanting new directions should not be given such a dismissive label in serious debates. Of course, the values of different positions should be as transparent as the data given to support them. Public transportation investment is not a necessary virtuous decision, nor is it a belligerent one.

    • Matts

      No matter how loud the dogs are barking, the caravan moves on. Short of a war or natural calamity of disproportionate magnitude, China is bound to grow bigger and stronger.

  • Loren Petrich

    Where did those route-length numbers come from? I couldn’t find them in the article’s links.

    I’ve found Rapid transit in the People’s Republic of China – Wikipedia but it is not as complete about planned lengths, though it does give expected opening dates for new systems.

    However, it’s impressive work by the Chinese city and national governments — remarkable how they are speeding ahead while all too many Americans have a “can’t do” attitude.

  • FG

    I think China’s investment in mass transit comes from three things 1. Congestion 2. Appearing to be modern (i.e. like getting rid of steam trains even though coal is cheap and readily available in China) & 3. Desire to import less oil.

    I’d say a big part of it is 2 but also providing employment and keeping construction trades working.

  • Matts

    No matter how loud the dogs bark the caravan moves on. Short of war or natural calamity of proportionate magnitude, China is bound to grow stronger and stronger

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