The Financial and Economic Assessmentof China’s High Speed Rail Investments
Jianhong Wu
Beijing Jiaotong University
OECD/ITF Roundtable on The Economics of Investment inHigh Speed Rail, New Delhi, India, 18-19 December 2013

Main Content
1. INTRODUCTION
2. THE COST OF BUILDING HSR INFRASTRUCTURE AND ITSCOMPOSITION IN CHINA
3. THE INITIAL OPERATIONAL PERFORMANCE OF HSR INCHINA
4. FINANCIAL ASSESSMENT OF CHINA’s HSR INVESTMENT
5. ECONOMIC ASSESSMENT OF CHINA’s HSR INVESTMENTS
6. SOME TENTATIVE CONCLUSIONS

1. INTRODUCTION•The background of building HSR in China:lack of capacity•The key role of HSR plan in China’s Rapid
Railway Development Plan•

HSR construction and its implementation
by 2012International Comparison on Routing Km vs. Traffic andTrain Density

25000060000

200000

50000
40000

150000

30000
100000

20000

50000

10000

00ChinaUS

Routing Length
Source:Density

Routine Length in KM

Rly Routine Length, Traffic and Train Density

RussianIndia

Gross-tkm/Line Km(000)Japan

Germany

Annual Train Km/ Line Km
4

Network Density, Average Annual Rail Trips and Pass-Km per Capita
706050403020

100Km/1,000 S.kmKm/100,000Capita
China

Tips/Capita

EU 15

US100Pkm/Capita

RussiaJapan100Pass/Train

India

Rail Congestion during Chinese New Year

Mid-and Long-term Railway
Network Program in China

Source:7

Dramatic increases of rail capital investment &HSR length since 2005
Investment,rail and HSR length
120

1098
780

660

5440

3
220

1002001

2002

2003

2004

2005

Capital investment(10 bi. CNY)

2006

2007

2008

2009

Rail length(000 km)

2010

2011

2012

HSR length(000 km)

HSR length

Investment & rail length100

HSRs network plan and its implementation in China by 2012

Dujianyan

Source: CR & UIC

2. THE COST OF BUILDING HSRINFRASTRUCTURE AND ITSCOMPOSITION IN CHINA

Estimated unit construction cost for 250 km/h HSLHS Line

Designspeed(kmph)

Length(km)Estimated unit
construction cost (m euro/km)

Hefei-Nanjing

250

156

6.03

Qingdao-Jinan

250

393

6.27

Shijiazhuang-Taiyuan

250

190

14.48

Coastal HSL

250

650

7.24

Chengdu-Dujiangyan

250

67

18.10

Changchun-Jilin

250

96

10.81

Hainan East Circle

250308

8.69

Wuhan-Yichang

250

293

9.78

Average construction cost of the HSL with 250kph

8.84

Estimated unit construction cost for 350 km/h HSL
HS LineDesign speed(kmph)

Length (km)Estimated unit
construction cost(m euro /km)

Beijing-Tianjin

350

120

20.51

Wuhan-Guangzhou

350

1068

15.69

Zhengzhou-Xi’an

350

456

12.07

Shanghai-Hangzhou

350

154

22.93

Guangzhou-Shenzhen

350

104

27.57

Zhengzhou-Wuhan

350

536

15.66

Harbin-Dalian

350

921

13.30

Beijing-Shanghai

≥350

1318

19.31

Average construction cost of the HSL with 350kph

16.50

The cost difference between 250km/h & 350km/h• The average unit cost of 350 km/h was about 90%
higher than that of 250 km/h.
• The major reason is because it has to be elevatedto accommodate the common use of slab tracks.
• The average ratios of the bridges and tunnels
length to the route length was 74% for the HSR
with design speed of 350 km/h and it raised ashigh as 90% for some specific projects.

THE HSL COST COMPOSITION in China• Includes the infrastructure, superstructure
and land costs.
• The average cost ratio of the infrastructureand superstructure are respectively around
60% and 20%, of which the bridges andtunnels are over 45% of the total cost.
• In general, the cost of HSL varies
enormously, between 8.00 and 30.00 million
Euros3.

THE INITIAL OPERATIONALPERFORMANCE OF HSR IN CHINA

Estimation of HSR traffic density from 2010-2012

Traffic density in million pkm/km

Traffic density on selected HSRs
35
Hefei-Nanjing
Beijing-Tianjin
Qingdao-Jinan
Shi-Tai
Costal HSL
Wuhan-Guangzhou
Zhengzhou-Xi'an
Shanghai-Nanjing
Nanchang-Jiujiang
Beijing-Shanghai

302520151050201020112012

The tariff level and estimated load factors of HSR lines

HS Lines

Average level ofthe HST and CTrunning on 250kph
lines

Tariff of 1stclass of HST(euro/pkm)

Tariff of 2nd Tariff of 2ndclass of HST class of fast(euro/pkm) CT(euro/pkm)

Tariff of 2nd Estimatedclass ofloadslow CTfactor (%)(euro/pkm)
HSTCT
65

0.045

0.037

0.019

0.009

55

Average level ofthe HST running on
0.082
350kph or overlines

0.054

93

4. FINANCIAL ASSESSMENT OFCHINA’s HSR INVESTMENT

A preliminary analysis with very limited
public data
• 50%-70% of HSL investment was frommarket borrowing.
• Very large traffic volumes are needed tosupport the high financial, depreciation, andoperating and maintenance costs• For most of the operating HSRs, the initialfinancial performance was poor whencompared with the ex-ante appraisals.

Estimate financial results of 4 HSL projects(m. CNY)
Item

2009

2010

2011

2012

Beijing-Tianjin-702.59-612.59-661.16-639.32

Wuhan-Guangzhou-3255.00 -2045.65-1003.04

Zhengzhou-Xi'an-2192.92 -1990.40-1762.56

3.92

333.42

Jian-Qingdao

192.83

The break-even traffic density of HSRs
BeijingTianjinHSL

ZhengzhouXi’an HSL

0.056

0.037

0.058

0.058

251425204

2.42

1.275

0.784

0.925

1.16

0.232

34.00

15.20

19.31

15.69

6.27

20.51

12.07

0.45890.1592

0.06600.05000.14750.05660.0192

Full recovery
of investment
within 8 years

FIRR=15%

Loss

Loss

Breakeven

Loss

Loss

Breakeven

25.28

18.22

54.90

40.63

24.57

51.28

30.18

40.60

TokaidoShinkansen*

BeijingShanghai
HSL

WuhanGuangzhou
HSL

Tariff (Euro/pkm)
in 2010

0.195

0.121

0.051

Traffic density(m pkm/km) in 2010

8020

Annual revenues perKm (m Euro/Km)

15.6

Unit construction cost(m Euros /km)
I/O ratio per Km **Initial financialperformance
Break-even trafficdensity correspondingto I/O ratio=0.145 (mpkm/km)

ChinaHSL(with 350kph) inaverage

QingdaoJinan
HSL

ParisLyon
TGV***: refers to traffic density* Tariff/unit construction cost

0.056

15.68

5. ECONOMIC ASSESSMENT OFCHINA’s HSR INVESTMENTS
5.1 Mode split ,the competition between HSR & air
5.2 Time savings
5.3 The break even traffic to justify the investment ofa HSL in terms of time savings
5.4 Additional capacity and its benefits
5.5 Reduced externalities from other modes
5.6 Wider economic impact
5.7 Some trial ex-post cost-benefit analysis of HSR
projects

5.1 Estimate traffic composition of 3 HSRs
Item

WuhanGuangzhou

Diverted fromconventional lines

52%

Diverted from aircraft

6%

Generated or shiftedfrom road42%

inc. roadinc. generated

Beijing-Tianjin Jinan-Qingdao
55.39%

93.61%

n.r.

n.r.

44.61%

6.39%

n.a

11.09%

n.an.a33.53%

n.a5.1 The competition between HSR & air5.1 The competition between HSR & air
Rail/air share in Wuhan-Guangzhou transport OD pairs
Before (2009)

After (2010)

ChangeAircraft

7.01%

2.86%

-4.16%

Conventional Train

92.99%

55.92%-37.06%

HS Train

0.00%

41.22%

41.22%

Total

100.00%100.00%5.1 The competition between HSR & air
Before and after rail/air market share on the major ODs along BeijingShanghai corridor

Xuzhou-rail

10.9

Xuzhou-air

Market share

0.8
0.7

Nanjingrail

0.6
0.5

Najing-air

0.4
0.3

Shanghairail

0.2
0.10200720082009201020112012Shanghaiair

5.1 Change of rail/air market share caused byBeijing-Shanghai HSR

AirportRail
distance
to Beijing

Railjourney
time toBeijing

Expected
Impactto airbeforeMarket Share %Before (2010)

After (2012)

RailAir

RailAir

Actualimpactto air
after

Jinan

406 km

1.63h

-36%

91%

9%

98%

2%

-78%

Xuzhou

692km

2.85h

-67%

93%

7%

98%

2%

-64%

Nanjing

1023km

4.10h

-4%

55%

45%

79%

21%

-53%

Wuxi

1210km

4.90h

-2%

57%

43%

70%

30%

-31%

Shanghai 1318km

5.53h

-2%

34%

66%

43%

57%

-13%

5.1 The competition between HSR & air• In China HSR tends to have a market share ofabout 80% when rail journey times are within 4hours or travel distance around 1,000km, which issignificant higher or longer than those of the EUand Japan.
• This can be explained by the HSR’s rather
cheaper price and higher frequency whencompared with the air and also the heavy airport
delay that happened so frequently in recent years.

5.2.1

Estimation of VOT in China

Estimate average VOT of business traveller in different provincesof 2011 (Euros/h)
1615

14

No. of Provinces

1210886443210A

B

CDE

A:VOT=2.01~2.50
B:VOT=2.51~
3.00
C:VOT=3.01~
3.50
D:VOT=3.51~
4.00
E:VOT>4.01

5.2.1The distribution of VOT in China

The unbalanced distribution of estimated VOT within same province
20
18

Estimated VOT(Euro/h)

16
China

14

Beijing
12Shanxi

10Jiangsu
Shanghai

8Guangdong
Henan

6Shaanxi

4Sichuan

2Gansu0Lowest 20%

Middle low 20%

Middle 20%

Income group

Middle high20%

Highest 20%

5.2. 2 Estimation of the time savings per pass.
For a 500 km journey(Euros)

Timesavings
per tripValue ofAveragetime saved
VOTper trip

The operational speed of HS train
with a max design speed of
250km/h at national average level

0.88

2.27

1.99

The operational speed of HS train
with a max design speed of
350km/h at national average level

1.79

2.27

4.05

Beijing-Shanghai HS Line

1.58

2.84

4.49

Wuhan-Guangzhou HS Line

1.68

2.09

3.51

Zhengzhou-Xian HS Line

1.69

1.97

3.34

Qi

5.3 The break even traffic to justify theinvestment of a HSL in terms of time savings

Qi  t  VOTiB ICi 1(1   )i 1TQi 1  Qi  (1   i )VOTi 1  VOTi  (1   i )Estimation of breakeven traffic for HSLs in China
300

250Average
Qb(in m.)200

150
118.66102.06
97.5

100

98.16

90.96

39.83
33.36
31.61

50

27.88
23.32
22.15

30.45
29.46

21.33
20.66

00

12

3

4

5

6

789First Year VOT(Euros/h)
HSR (250 kph)

HSR (350kph)

Jing-Hu HSR

Wu-Guang HSR

Zheng-Xi HSR

1011

5.4 Additional capacity and its benefits• Many passengers of conventional trains refused to change to thepassengers of the HSR with 350 km/h, mainly due to the high level oftariff and its lower axle load limitation prohibits the conventional
passenger trains to run on it.
• Accordingly, a large number of conventional trains have to be kept
running on the existing lines.
• So it is difficult to free up substantial capacity for freight trains on mostof the existing lines.
• For the HSRs in operation, the additional revenue cargo volume thatcan be actually achieved in recent years is quite low, between one thirdand one tenth of that expected• One of the problems is that high speed lines have only been built onsome sections, and bottlenecks remain elsewhere on the main freightroutes.

5.5 Reduced externalities from other modes
Energy consumption by train and air on a specific corridor in 2010
Intercity train

HST (1000 km)

Air (900km)

Maximum speed

160

350

700

Seating capacity

1200600

180

Load factor

90%

50%

81%

KWH per gross ton km

0.016

0.043

n.a

KWH per 100 passenger km

1.63

5.59

n.a0.61

1.28

MJ per passenger km
Source: Wu, Cui and etc., 2011

5.5 Reduced externalities from other modes• Given the composition of the HS traffic mainly from CT andnew generation, the energy savings seem to be very
limited.
• The introduction of HSR cannot lead to a substantial
environmental advantage and where there is only limited
diversion from air, it will undoubtedly lead to an increase inenergy consumption.
• So the objective to reduce negative externalities will not
happen unless HST can raise its load factor substantiallyand shift huge traffic from the other modes, especially frompotential future car traffic.

5.6.

Wider economic impact• The wider economic impact of HSR in China could begreater than in the EU.
• Officials from Dezhou city and Xuzhou city claimed that theland price around their stations of Beijing-Shanghai HSR
rose more than 20 times after the operation of HSR.
Further, as it has happened in the EU, there is also anegative impact of HSR on regional economicdevelopment.
• However, it is still difficult to quantify it at this moment not
only due to their short time operation, but also because ofthe difficulty in separating the agglomeration economies
induced by HSR from other reasons.

5.7.

Some trial ex-post CBA of HSR projects

Ex ante
FIRR

EIRR

Project A

Project B

Project C

≥6%

≥6%

≥6%

6.00%

negative

8.50%

Ex ante≥20%

positive, butless than 3%≥20%

Ex post10.90%

10.00%Ex post≥20%

In China the official discount rate for financial evaluation has been 3% since 2006,
while that for economic evaluation is 8%. The rail project evaluation period has been
25 years since 2006

5.7

A trial ex-post CBA of a HSR project A
Total CBA for the HSR project A (with an ideal scenario)

200.00180.00

NPV (100 m.CNY)

160.00140.00120.00100.00
80.00
60.00
40.00
20.00
0.00
Financial benefit

Benefit fromadditional
capacity

Time and costsavings

Benefit fromreducedexternalities

Total benefit

5.7 A trial ex-post CBA of a HSR project B
Total CBA for the HSR project B
250

NPV (100 m. CNY)

20015010050
0-50-100-150

Financial
benefit

Benefit from Time and cost Benefit from Total benefit
additionalsavings
reducedcapacity
externalities

5.7A trial ex-post CBA of a HSR project CTotal CBA for the HSR project C
100NPV (100 m. CNY)

500-50-100-150-200-250

Financial
benefit

Benefit from Time and cost Benefit from Total benefit
additionalsavings
reducedcapacity
externalities

6. SOME TENTATIVECONCLUSIONS• A comprehensive appraisal should be undertaken
for investing in a HSR project.
• The initial financial and economic performance ofHSR in China indicates that deployment of HSR
throughout the country to high technical standards
is unlikely to be justified, esp for most of the HSLs
built in the middle and west areas.
• The commercial breakeven traffic density in China
for the 350 km/h HSL is about 40-50 million
passenger trips per annum, while that for 250 km/h
HSL is about 25-30 million. The construction cost
and the level of debt funding are the mostimportant variables in determining the breakevenvolume.

• For a positive social cost-benefit ratio in China,solely in terms of time savings, it would require of
the order of 100m passengers per annum justifying
HSR. However, the additional volume of trafficneeded to justify will be 28m passengers perannum in the case where a new advanced
conventional will otherwise be built, so that it is
only the incremental cost of high speed that has tobe compared with the value of time savings.
• HSR in China seems to be more successful atcompeting with air than in the rest of the world.

• The introduction of HSR in China is unlikely tohave significant environmental benefits unlessload factors can be raised substantially andlarge volumes of traffic can be shifted fromother modes in the future• There is an urgent need to design and adopt apackage of new HSR policies in China, bothfor improving the operational, financial andeconomic efficiencies of the existing HSRlines and for re-evaluating the HSR projects
that are under construction or still in theplanning stage.

• For HSR lines in the western part of China
additional significant subsidy from central
and regional governments will be needed
not only for construction of infrastructure but
also for high speed train operations.
• Network effects and evaluation of the wider
economic benefits of HSR are important
issues to be addressed for the futureplanning of HSR in China.

Thank you！ थैंक यू！
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