Tuesday, September 11, 2012

Four of 14 Chinese HSR lines break even, including debt payments

From MarketWatch:


BEIJING ( Caixin Online ) — Four of the nation’s 14 high-speed rail lines have financially broken even since bullet trains started full-speed, intercity service in China two years ago, giving impetus to a Ministry of Railways expansion.
Passenger ticket revenues have so far matched expenses — including debt payments — for the busy Beijing-Tianjin, Shanghai-Nanjing, Beijing-Shanghai and Shanghai-Hangzhou lines, a source at the National Development and Reform Commission (NDRC) told Caixin.
Moreover, the financial health of the Beijing-Shanghai line exceeded expectations during its first operating year, which ended in June, sources told Caixin.
The ministry has declined to release financial data, but said trains whisked 52.6 million passengers between the two cities during the 12-month period. Ticket sales on the line brought in 1.86 billion yuan ($293.4 million) in July 2011, Caixin learned from other sources, and about 7 billion yuan between June 2011 and January.
This and other noteworthy financial data reflects the popularity of fast-rail tripping in relatively wealthy eastern China, where some people now choose bullet trains over airliners and business travelers abound.
Passenger cars on bullet trains in other parts of the country, such those traveling the Zhengzhou-Xi’an line, are emptier and apparently underperforming financially. Some may be losing significant sums of money.
Only about a dozen trains a day travel the Zhengzhou-Xi’an high-speed railway, for example, compared to 65 fast trains a day running between Beijing and Shanghai. A lighter schedule on a given line means less revenue for servicing debt.

Beijing-Tianjin has been open for four years, Shanghai-Nanjing and Shanghai-Hangzhou both for two years and Beijing-Shanghai for only one. Rather interestingly, the 65 trains per day between Beijing and Shanghai are reported to have an occupancy rate of 72%, which is fairly substantial, especially in such a short time frame.

It should be noted that the interest rates on the loans are so low as to effectively be grants; the article reports that Beijing-Shanghai route borrowed approximately 110 billion yuan on a 20 year loan with interest of about one billion yuan a year (the first five years of which the banks waived the interest). At an interest rate of about 0.9%, that's well below inflation and is simply a veiled form of subsidy, even if it does pay back a large portion of the capital invested in it.

While the article does paint a rosy picture, it could be read as a rather poor picture of health for the Chinese high speed rail network, with 70% of its network failing to break even. On the other hand, it's only a few years in for these lines, some of which are not yet fully completed, and even if they do not break even, that does mean that they are not economic positives for China and financially positive for Chinese railways in particular. High speed rail has a higher cost recovery than does conventional rail and by removing passenger trains from the current mixed network and separating it into dedicated freight and passenger lines allows for a simultaneous major increase in freight capacity as well (Amtrak's trains are apparently the equivalent to 3-4 freight trains in terms of slot requirements). More capacity means more freight revenue, which is always substantially higher than passenger revenue, and so a net gain even if the HSR line itself does not fully cover its own costs. This is not applicable to high speed rail schemes in the United States however.

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