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China's bullet trains barrel ahead despite $770bn debt load

Rail network keeps growing as government seeks economic boost

The state-owned company plans an additional 4,000 km of track this year, with a goal of expanding the network to 45,000 km in 2030.   © Reuters

DALIAN, China -- High-speed-rail operator China State Railway Group continues apace with its building despite its ballooning debt, backed by a government that views it as the perfect vehicle to bolster a sagging economy.

"No one is expecting our city to prosper just because we get a new line," said a worker at a grocery store near a train station in Chaoyang, in the northeastern province of Liaoning. Opened in 2018, the station sits in a sleepy area with low passenger traffic and almost no nearby retail shops or hotels. Yet it will host additional service come July.

Chaoyang is a struggling place even for Liaoning, a province suffering from a particularly deep economic slump. Building a new station, and adding new service, in a region without much in the way of industry, only goes to show the lack of profitability-focused planning by a China State Railway that has added track at an annual clip of 10% to 20% in recent years. The network reached about 35,000 km in late 2019.

The state-owned company, spun off from what is now the Ministry of Transport, plans an additional 4,000 km this year, with a goal of expanding the network to 45,000 km in 2030.

"Transportation infrastructure propels economic growth and builds the foundation of a more comfortable society," Transport Minister Li Xiaopeng said in May.

But such ambitions have not made economic sense. While revenue reached 1.13 trillion yuan ($159 billion) in 2019, net profit came to about 2.5 billion yuan, for a paltry net margin of 0.2%. With travel restrictions to stop the novel coronavirus, China State Railway incurred a net loss of 61.3 billion yuan for the first quarter of 2020.

Liabilities neared 5.49 trillion yuan, or $773 billion, at the end of 2019. Except for service in such major cities as Shanghai, many of China State Railway's high-speed lines are bleeding red ink, with finances particularly weak in such economically struggling regions as Liaoning, China's northernmost province of Heilongjiang, and Inner Mongolia. Among its 18 operating units across the country, 11 posted net losses for the first half of 2019.

Chinese President Xi Jinping's government was already promoting infrastructure work to prop up the economy and create jobs before COVID-19 hit. Now, with the pandemic dealing an economic blow, railway and road construction has become even more important.

Regional governments are also desperate to hop aboard.

"We want the railroad to come to our region as well," pleaded officials from Jiujiang, a small inland city in Jiangxi Province, at the National People's Congress in May.

"Local government officials want to achieve economic growth through railway construction during their terms with no regard for how to repay debt," said Zhao Jian, a professor in the School of Economics and Management at rail-focused Beijing Jiaotong University.

"Repaying is impossible at this point," Zhao said.

Improving profitability by raising ticket prices is a tall order, with fares for such public transportation as buses and taxis usually set low. China State Railway also transports freight. But tracks not built for the weight of cargo trains pose a hurdle to expansion.

The central government has announced roughly $14 billion in fresh capital for high-speed rail, split equally between bonds and a direct injection into China State Railway. The company "should scale back construction of high-speed rail and instead increase ordinary railroads that can handle freight trains," Zhao said. But it is unlikely to heed voices like Zhao's.

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