Financial and Economic
Assessment of China’s
High Speed Rail Investments

28

Discussion Paper 2013 • 28
Jianhong Wu

Beijing Jiatong University,
China

The Financial and Economic Assessmentof China’s High Speed Rail Investments:
A Preliminary Analysis
Discussion Paper No. 2013-28

Prepared for the Roundtable on
The Economics of Investment in High-Speed Rail
(18-19 December 2013, New Delhi, India)

Jianhong WU
Beijing Jiaotong (Transport) University
China

December 2013

THE INTERNATIONAL TRANSPORT FORUM
The International Transport Forum at the OECD is an intergovernmental organisation
with 54 member countries. It acts as a strategic think-tank, with the objective of helping
shape the transport policy agenda on a global level and ensuring that it contributes toeconomic growth, environmental protection, social inclusion and the preservation ofhuman life and well-being. The International Transport Forum organises an annual
summit of Ministers along with leading representatives from industry, civil society andacademia.
The International Transport Forum was created under a Declaration issued by the Councilof Ministers of the ECMT (European Conference of Ministers of Transport) at its Ministerial
Session in May 2006 under the legal authority of the Protocol of the ECMT, signed in
Brussels on 17 October 1953, and legal instruments of the OECD.
The Members of the Forum are: Albania, Armenia, Australia, Austria, Azerbaijan, Belarus,
Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Chile, People’s Republic of China,
Croatia, Czech Republic, Denmark, Estonia, Finland, France, Former Yugoslav Republic ofMacedonia, Georgia, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Japan,
Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Republic of Moldova,
Montenegro, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, RussianFederation, Serbia, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey,
Ukraine, United Kingdom and United States.
The International Transport Forum’s Research Centre gathers statistics and conducts
co-operative research programmes addressing all modes of transport. Its findings arewidely disseminated and support policymaking in Member countries as well as
contributing to the annual summit.

Discussion Papers
The International Transport Forum’s Discussion Paper Series makes economic research,commissioned or carried out at its Research Centre, available to researchers andpractitioners. The aim is to contribute to the understanding of the transport sector and toprovide inputs to transport policy design.
ITF Discussion Papers should not be reported as representing the official views of the ITF
or of its member countries. The opinions expressed and arguments employed are thoseof the authors.
Discussion Papers describe preliminary results or research in progress by the author(s)and are published to stimulate discussion on a broad range of issues on which the ITF
works. Comments on Discussion Papers are welcomed, and may be sent to: International
Transport Forum/OECD, 2 rue André-Pascal, 75775 Paris Cedex 16, France.
For further information on the Discussion Papers and other JTRC activities, please email:itf.contact@oecd.org
The Discussion Papers can be downloaded from:www.internationaltransportforum.org/jtrc/DiscussionPapers/jtrcpapers.html
The International Transport Forum’s website is at: www.internationaltransportforum.org
This document and any map included herein are without prejudice to the status of or sovereignty over any
territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or
area.

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

ABSTRACT

China has suffered railway capacity constraints for more than several decades and the needfor a large increase in rail capacity has been viewed as the primary challenge. The former
Chinese Ministry of Railways believed that building a national wide high speed railway(HSR) network was the most efficient solution to China’s rail capacity problems. By 2012,
9 000 km of HSR line has been completed which accounted more than half of the total in
the World and the other 9 000 km HSR line is either under construction or in the planningstage.
This paper attempts to discuss the initial operational, financial and economic result of sucha large scale HSR investment in China where the establishment of an appraisal system for a
HSR project is still underway and the public data in need are not available. Based on sometrial studies carried out on several HSR projects, however, the paper shows that except fora limited amount of HSR projects in the most developed areas of the country, the initialfinancial and economic performance of most HSR lines are generally much poorer than
expected. The scale of investment seems to be difficult to justify, given that investment in
HSR lines is very expensive, especially for those with design speed of 350 km/h, and thehigh level of debt funding. Moreover the values of time of the ordinary Chinese are still low
by European standards.
For a developing country planning HSR projects, one lesson that can be learnt from China isthat it would be ideal if a comprehensive appraisal can be taken into account before
investing in HSR. Such appraisal includes examination of different options for technical andoperational standards, timing of investment, construction scale and pace, train operational
scheme and service level, pricing and regional development policy (political consideration).
At the very least, a step by step development strategy should be adopted to cope with thehuge uncertainties and risks.

1. INTRODUCTION

In the next section we introduce the background information on HSR planning and its
radical implementation by 2012 in the Chinese situation. We then consider in turn theconstruction costs of HSR and its composition in China, the initial operational and financial
performance of the selected HSR projects. After this we assess the initial economic resultsof several HSR projects via their impact on mode split, the competition between HSR & air,time savings, additional capacity, reduced externalities and 3 actual project benefit
analyses on a trial base. Finally the issue of wider economic benefits is discussed before
reaching our tentative conclusions.
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 20133

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

1.1

The background of building HSR in China

For more than 30 years, the extremely rapid growth of the economy in China hasgenerated a continuing demand for basic commodities, while increasing wealth in China,
where there is over 1.3 billion population, has also put extreme pressure on passenger
demand. As Figure 1 shows, the net result of these trends is that Chinese Railways (CR)now has by far the highest traffic density network in terms of Gross Ton-Km per line Km in
1
the World . This capacity stress is aggravated by the fact that the coexistence of relatively
fast passenger trains and slow freight trains further strains reliable operations.
Figure 1. International Comparison on Routing Km vs. Traffic and Train Density

Main source：UIC, 2009 and 2010

For example, in China there are Six Artery Lines, namely Beijing-Shanghai Line, Beijing—
Guangzhou Line, Beijing-Harbin Line, Beijing-Hong Kong Line, Longhai Line and ZhejiangJiangxi Line. For those lines, capacity is almost saturated. Also there are restricted
corridors for entrance and exit in some areas. Further, CR has been facing seasonal
capacity constraints for many years, esp. during Chinese New Year and Summer Holidays.
International comparison shows that in terms of railway network density, trips and pass-km
per capita, China is far lower or lower than the major railways in the world, while theaverage load of conventional passenger train is much higher. Figure 2 indicates that:

1.
4



China has less than half the ratio of rail line-km/1 000 square km of land area thanIndia has, and is even farther below Japan and the E.U.



China has less rail line km/100 000 population than India, and only half that ofJapan, to say nothing of the U.S.



Chinese people take only one-third the rail trips/capita of India, and oneseventieth that of Japan.

The train density in the truck lines in China is 2-3 times higher than that of the average.
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Figure 2. Network Density, Average Annual Rail Trips and Pass-Km per Capita

Main source： UIC, 2009 and 2010

Finally, international experience also shows that railway transport is a powerful tool tosupport sustainable development. A study (INFRS/IWW 2004) illustrates that in the E.U.
the average external cost of railway is less than 1/4 of the road for freight and is only 1/3of the car for passengers. In China’s case, a trial study (Nash C., Shires J. etc., 2008) has
been finished with the help of the World Bank. The preliminary conclusion showed theaverage external cost of railways in China was only 1/25 of that of road for freight and was
1/8 of that of autos for passengers.
All the reasons mentioned above can conclude that China has the most heavily used rail
network in the world and that railway will have to keep a major share of both passenger
and freight markets for China’s sustainable development. The former Chinese Ministry of2
Railways (MOR) viewed the primary challenge as simply being a lack of capacity.
1.2.

The key role of HSR plan in China’s Rapid Railway Development Plan

Accordingly, a mid-and Long-term Railway Network Program (MLRNP) in China was draftedby former MOR and approved by the State Council in 2004. The MLRNP was further
modified in 2008 to accommodate the various kinds of demands from the provincial
governments. The major content of the MLRNP can be summarized as follows (seeFigure 3):2

Chinese government decided to dismantle the Ministry of Railways into administrative andcommercial arms in the annual session of the country's top legislature on March 10, 2013

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 20135

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS(1). By 2020, railway operating route will exceed 120 000 km, of which the high speed
railways (HSR) and the intercity high speed lines will take 1 8000 km, and both the ratio of
double-track and electrified line will be increased to 60%.
Figure 3. Mid-and Long-term Railway Network Development Map

Mid-and Long-term Railway
Network Program in China(2). Through construction of HSRs and upgrading of existing lines, an express passenger
transport network with a total length of more than 40,000 km( including 18 000 km of
HSRs) will be formed to serve 90% of cities with population over 500,000 (Figure 4) .

6

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Figure 4. Map of an Express Passenger Transport Network in China(3). Completion of the Backbone of Large-capacity Freight Transport Corridors, namely:
Coal transport corridor, South-North corridor, Northeast corridor, Southwest corridor andNorthwest corridor
Without examining sufficient alternatives to solve the capacity problem , the decision
makers of former MOR believed that building a national wide HSRs network was thesolution to maintain present and future economic development. Further, the decision makeralso believed that passenger trains could be transferred from existing lines to the HSRs torealize the separation of passenger trains from freight ones, resulting in a great increase of
the freight transport capacity on existing lines. So completing the HSRs network has been a
top priority task for former MOR since 2005.
3

1.3.

HSR construction and its implementation by 2012

The development of HSR lines is seen as the most significant task in the long-term
development plan of former MOR and has been the key part of the 11th FYP (2006-2010)
and 12th FYP (2011-2015) of the railway sector. The 1st round of HSR construction with
two kinds of technical standards in terms of design speed, i.e. 250 km/h and 300 km/h orabove was initialized in China since 2005 (Appendix 1). The construction process and3.

Unlike the twin desire for building a new high speed line Worldwide (Nash, 2009), thecompetition from air is not so server in the major railway corridors, e.g. the passenger market
share of different modes in Beijing-Shanghai corridor was 78.7% for road, 18.8% for rail andonly 2.5% for air in 2009.

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 20137

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

engineering period were radically accelerated to serve as a strong tool to stimulate theChinese economy and to cope with the global financial crisis (Keynesian policies).
Accordingly, a “Great Leap Forward” Railway Expansion was implemented. The total capital4
investment in the 11th FYP (2006-2010) approached nearly 2 trillion RMB (Figure 5), withcapital spending reaching an all-time record of 700 billion RMB in 2010, which is 9 times
the level of investment in 2005. The investment in HSRs will account for around 70% of thetotal railway investment between 2006 and 2015，while the length of new HSR line
increased from 410 km in 2008 to 5143 km in 2010, ranking No.1 in the world only within
3 years. By 2012, the routine length of HSR in China reached 9000 km which accounted formore than half of total HSR line in the world, including 5700 km of lines for speeds above
300 km/h (Figure 6).
Figure 5. Dramatic increases of rail capital investment and HSR length since 2005

Investment,rail and HSR length
120

10
9
8
7

80

6
60

5
4

40

HSR length

Investment & rail length

100

3
2

20

1
0

0
2001

2002

2003

2004

2005

2006

Capital investment(10 bi. CNY)

2007

2008

2009

Rail length(000 km)

2010

2011

2012

HSR length(000 km)

Source：Former MOR’s documents on issuing railway bonds.

4.
8

At January 2011 rates, that was equivalent to USD 316 billion
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Figure 6. HSRs network plan and its implementation in China by 2012

Dujianyan

Source: CR & UIC

2. THE COST OF BUILDING HSR INFRASTRUCTURE
AND ITS COMPOSITION IN CHINAAs shown in Appendix 1, two kinds of HSR lines, defined as either a rail system having amaximum speed of 250 km/h or having a maximum speed of 350 km/h, have beendeveloped in China since 2005. Appendix 2 lists the unit cost of building HSR infrastructure
based on public data. The construction cost per km of 12 projects with design speed of
250 km/h ranges from 6.03 to 18.10 million Euros, with an average cost of 8.84 million.
While the construction cost per km in 10 projects with design speed of 350 km/h or overvaries between 12.07 and 27.57 million Euros, with an average value of 16.50 million.
In most projects with design speed of 350 km/h, stations in big cities such as those in
Beijing, Shanghai, Tianjin, Wuhan, Guangzhou, Jinan, Shenzhen and so on, areindependent projects with an architectural design, huge space and associated costs far
beyond the minimum needs for train operating purposes. The total infrastructure cost of
HSR with design speed of 350 km/h or over could be increased by from 10% to 30% if theconstruction cost of the big stations is included.
Appendix 2 also shows that the average unit construction cost of high speed rail withdesign speed of 350 km/h was about 90% higher than that of 250 km/h. The major reason
for the so high incremental cost is because it has to be elevated to accommodate thecommon use of slab (ballastless) tracks: many parts of China have soft soils, and thus
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 20139

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

bridges/viaducts are used instead of road bed at ground level (Wu and Rong, 2013). The
average ratios of the bridges (including viaducts) and tunnels length to the route length
was 74% for the HSR with design speed of 350 km/h (Liu, J, 2010) and it raised as high as
90% for some specific projects(Wang Y., 2009). This is much higher than in the EU.
The cost composition of HSR infrastructure includes the infrastructure, superstructure, landand other costs. The average cost ratio of the infrastructure and superstructure arerespectively around 60% and 20% (Liu, J., 2010), of which the bridges (including viaducts)
and tunnels are over 45% of the total cost. This is well above than in the EU, where it
usually represents between 10% and 25% of the total HSR infrastructure cost (Campos,
and De Rus, 2009).
In general, the unit construction cost of HSR line in China varies enormously, between 8
and 30 million Euros, and depends mainly on the technical standards adopted and othercircumstances. This is not as low as some people supposed when compared with European
standards as 12–40 million Euros (Nash, 2009) and adjusted by purchasing power parity(PPP).

3. THE INITIAL OPERATIONAL PERFORMANCE OF HSR IN CHINA

So far, there is little public data on line-by-line operational performance of HSRs in China.
However, based on the number of pairs of trains available on an electric train time table
named JPSKB, the load factors and the seating capacity of different kinds of trains and theinitial operational performance of 15 HSRs can be estimated as shown in Appendix 3,
Figure 7 and Figure 8. The traffic density of the HS lines in 2012 can be classified in
3 groups. The first group is composed of 8 HS lines whose traffic densities are more than
5
20 million passenger trips per annum . Among them, 4 are lines with design speed of
350 km/h and located in the richest and densest population area in China (such as BeijingShanghai HS line and Shanghai-Hangzhou HS line), and 4 are lines with design speed of
250 km/h and mainly located in the East part of the country or linking its middle part with
the East (such as Qingdao-Jinan HS line, Nanchang-Jiujiang HS line and Hefei-Nanjing HSline). The 2nd group is composed of 3 HS lines whose traffic density is greater than 10
million passenger trips per annum, but less than 20 million, including Wuhan-Guangzhou
HS line and Coastal HSL. The 3rd group is composed of 4 HS lines with traffic density lessthan 10 million and mainly located in the less relatively developed areas of China, such as
Zhengzhou-Xi’an HS line, Chengdu-Dujiangyan HS line and Changchun-Jilin HS line.

5

10

It is defined as there are 20 million passenger trips running through per km of route line per
year.
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Figure 7. Daily average number of passenger trains on selected HSRs from 2010-2012

Daily passenger trains on selected HSRs
120
Hefei-Nanjing
Beijing-Tianjin

Daily passenger trains

100

Qingdao-Jinan
80

Shi-Tai
Coastal HSL

60

Wuhan-Guangzhou
Zhengzhou-Xi'an

40

Shanghai-Nanjing
20

Nanchang-Jiujiang

Beijing-Shanghai
0
2010

2011

2012

Appendix 3 also shows that in terms of annual traffic increase rate from 2010 to 2012, theselected 15 HSR s can be also grouped into 3 categories. Category one is composed of 7
HS lines whose average annual traffic increase rate is greater than 20%. Most of themsuffered from heavy rail capacity constraints before the opening of HSR, which are the casefor the HS lines of Wuhan-Guangzhou, Hefei-Nanjing Shijiazhuang-Taiyuan and Beijing6
Shanghai (except for that of Zhengzhou-Xi’an ). Category two is composed of 3 HS lines
whose average annual traffic increase rate is greater than 7%, but less than 15% while
category three is composed of 5 HS lines whose average annual traffic increase rate is lessthan 4% or stable, whose demand for high speed services develops more slowly than
expected. The reasons for the lines with the lower traffic increase rate are either due to theparallel line competition, e.g. between Beijing-Shanghai HSL and Beijing-Tianjin HSL or
Shanghai-Nanjing HSL, or due to the lower economic growth rate, which is the case for
HSLs of Changchun-Jilin and Nanchang-Jiujiang.

6.

The high annual increase rate of Zhengzhou-Xi’an HSL is mainly due to the network effectwhich caused by the opening of Zhengzhou-Wuhan and Zhengzhou-Beijing HSL in 2012.

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201311

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Figure 8. Estimation of traffic density on selected HSRs 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

30
25
20
15
10
5
0
2010

2011

2012

Further, the 250 km/h HS lines with ballasted tracks can accommodate both the HS train(HST) and the conventional train (CT), while the 350 km/h HS lines with slab track andlower axle load limitation (≤17t) prevents the CT, whose axle load is≥21t, to run on it. This
important technical characteristic made the 250 km/h HS lines gained higher traffic volume
and better train load factor than those of the most 350 km/h HS lines, given that the tariff
level for the HST running on 350km/h lines is about 2 or 4 times higher than that of the CT(Figure 9 and Appendix 6).
Figure 9. Average tariff level of HS train and conventional train in China

Tariff level of HST and CT
0.090
Tariff of 1st Class of
HST(euro/pkm)

0.080
0.070

Tariff of 2nd Class of
HST(euro/pkm)

Euro/pkm

0.060
0.050

Tariff of 2nd Class of fast
CT(euro/pkm)

0.040
0.030

Tariff of 2nd Class of slow
CT(euro/pkm)

0.020
0.010
0.000
Average tarrif level Average tarrif levelof the HST and CTof the HST runningrunning on 250kph
on 350kph or over
lines
lines

12

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

4. FINANCIAL ASSESSMENT OF CHINA’S HSR INVESTMENT

4.1.

A preliminary analysis for the initial financial performance of HSRs

It is rather difficult to have a precise financial assessment of China’s HSR investment atcurrent stage, not only because most of HSRs have been opened less than 3 years ago, butalso because very little information is publicly available on the financial performance of the
HSRs. However, a brief analysis or projection can be made based on some empirical data
disclosed by media, author’s professional knowledge and international experience so far.
From the financial performance point of view, international experience shows that so far
only Tokaido-Shinkansen and Paris-Lyon TGV are financially profitable worldwide. In China,
due to the limited financial investment from the government, 50%-60% of HSL investment
was from market borrowing. Therefore, very large traffic volumes are needed to support
the high financial, depreciation, and operating and maintenance costs when a HSL is put
into operation. For most of the HSRs listed in Appendix 1, the initial financial performance
was poor when compared with the ex-ante appraisals. Indeed, the actual construction costof most lines was about 30-50% higher than expected in the feasibility study stage, while
the actual traffic volumes were far lower than the forecast. An estimation of the initialfinancial performance of four HSR projects has been made and is described in Tables 1- 4.
Table 1. Estimation of the financial performance of Beijing-Tianjin HSL
Item
Total traffic volume（ m pass-km）

2009

2010

2011

2012

2 244

2 640

2426.42 522.4

Interest payment(m. CNY)

600

600

600

600

Depreciation(m. CNY)

613

613

613

613

O & M cost(m. CNY）

600

705.93648.82674.49Total cost (m. CNY）

1 813

1 918.94

1 861.82

1 887.49

Average rate（CNY/Pass-km)

0.49

0.49

0.49

0.49

Total ticket sale (m. CNY）

1 110.41

1 306.36

1 200.66

1 248.18

Financial result (m CNY)

-702.59-612.59-661.16-639.32

854

854

854

854

Annual average repay of theprincipal（m. CNY)

Source: Author’s own computation mainly based on information from WENG Shuping，2010-04-05”The Financial Result ofLeap Forward: The Annual Operation of Beijing-Tianjin HSR Cause a Loss of 700 million CNY”, Economic Observer
Newspaper

Table 1 indicates that the financial loss of Beijing-Tianjin HSL mainly comes from very highcapital investment (20.51 m. Euros/km)), high financial costs and lower annual traffic
increase rate at 3.05%. This situation is difficult to be changed unless there is a rather hightraffic increase in the next few years.
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201313

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Table 2. Estimation of the financial performance of Wuhan-Guangzhou HSL
Item

2010

2011

Total traffic volume（ m pass-km）

1 087016 30421 087

Interest payment(m. CNY)

2 600

2 600

2 600

Depreciation(m. CNY)

3 000

3 000

3 000

O & M cost except energy (m. CNY）

2 000

3 000

3 880

655

946

1 223

Total cost (m. CNY）

8 255

9 545.65

10 703.04

Average rate（CNY/Pass-km)

0.46

0.46

0.46

Total ticket sale (m. CNY）

5 000

7 500

9 700

-3 255.00-2 045.65-1003.04

5 000

5 000

5 000

Energy for Train(m. CNY)

Financial result (m CNY)
Annual average repay of the principal（m. CNY)

2012

Source: Author’s own computation mainly based on information from SONG Jing，2010-11-29，“5 Billion CNY，The Knack ofWuhan-Guangzhou HSL for Doing Business”, The Economic Report in 21st Century

Table 2 shows that the financial loss of Wuhan-Guangzhou HSL mainly comes from highcapital investment (15.69 m. Euros/km), high financial costs and a lower traffic density(19.71 m. passenger trips per annum) although it exhibit a very high annual traffic increase
rate at 44.34%. It seems that the commercial viability of this kind of project will beachieved if the traffic can keep increasing at 20%.
Table 3 shows that the heavy financial loss of the Zhengzhou Xian HSL project mainly
comes from a very low traffic density (5.75 million passenger trips per annum), rather thanhigh financial costs, although its capital investment (12.07 m. Euros/km) is relatively low.
This kind of project, i.e. a HSR project in the middle and west part of China, is unlikely to
break-even financially in the foreseeable future.
Table 3. Estimation on the financial performance of Zhengzhou-Xi'an HSL
Item

2010

Total traffic volume（ m pass-km）

2012

929.001 858.00

2 903.12

Interest payment(m. CNY)

1 254.76

1 254.76

1 254.76

Depreciation(m. CNY)

1 140.69

1 140.69

1 140.69

O & M cost except energy (m. CNY）

170.94341.87534.17

Energy for Train(m. CNY)

53.88

107.76168.38

Total cost (m. CNY）

2 620.26

2 845.08

3 098.00

Rate（CNY/Pass-km)

0.46

0.46

0.46

Total ticket sale (m. CNY）

427.34854.68

1 335.43

Financial result (m CNY)

-2 192.92-1990.40-1 762.56

2 100

2 100

2 100

Annual average repay of the principal (m. CNY)

14

2011

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Table 4. Estimation on the financial performance of Jian-Qingdao HSL
Item

2010

Traffic volume（ m pass-km）

2011

2012

8 434.57

9 914.92

1 1016.58

Interest payment(m. CNY)

561.76561.76561.76

Depreciation(m. CNY)

510.69510.69510.69

O & M cost except energy (m. CNY）

489.32575.20639.11

Energy for Train(m. CNY)

221.31

260.15289.05

1 783.07

1 907.79

2 000.60

0.21

0.21

0.21

1 786.99

2 100.62

2 334.02

3.92

192.83333.42

850

850

850

Total cost (m. CNY）
Average rate（CNY/Pass-km)
Total ticket sale (m. CNY）
Financial result(m CNY)
Annual average repay of the principal（m. CNY)

Table 4 shows that, unlike the previous three 350km/h HSL, the financial result of JianQingdao HSL is positive, which is very unique among the operating HSLs. This is simply
because of the very low capital investment (6.27 m. Euros/km) from lower technicalstandard (with 250 km/h), a rather high traffic density (28.03 m. passenger trips perannum) and a middle annual traffic increase rate at 14.29%.
4.2.

The estimation of commercial break-even traffic density of HSRs in China
via international comparison and their initial financial performance

Given the level of unit construction costs, the high level of debt funding structure (up to
60% of the total investment), the current tariff level and the operating and maintenancecosts of the of HSRs, the breakeven traffic density in China for the HSRs with 350 km/h isestimated to be about 40-50 million passenger trips per annum, while that for the HSRs
with 250 km/h is estimated about 25-30 million passenger trips per annum (Appendix 4).
For HSRs with traffic density less than 10 million passenger trips per annum, if other trains
could not run on them, their operating incomes will have difficulty to cover operating costs
and interest repayment. If so, these lines will become long-term loss making assets.

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201315

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

5. ECONOMIC ASSESSMENT OF CHINA’S HSR INVESTMENTS

In China, the establishment of an economic assessment system for a HSR project is still
underway and there is almost no published ex post cost-benefit analyses of specific HSR
projects. In this section, we discuss some key issues related to the economic assessment ofChina’s HSR investments and then introduce some trial studies for the appraisal of several
HSR projects.
5.1. Mode split, generated traffic and the competition between HSR and air
The official data on the HSR impact on mode split is not yet available in China, not only due
to the short period of time of HSR operation, but also due to the lack of a sense ofimportance for those data from the Chinese Railway authority. However, several casestudies have been made to estimate the HSR impact on modal split.
As has happened in other countries where HSR services have been introduced, China’s HSR
investments lead to shorter travel times, somewhat cheaper price and much higher
frequency compared to air transport, and improved travelling conditions, which haveresulted in different levels of modal shift and generation of new demand on different routes(Givoni, 2006). Most of the demand shifted to the HSR services from other modes is either
from aircraft for long distance travel, which was the case on the Wuhan-Guangzhou routeand Beijing-Shanghai route (Tables 10 & 11), or from bus for shorter distance travel, which
was the case on the Beijing-Tianjin route (Table 7). However, it is also true that at least
half of the demand for new HSR services is demand shifted from the conventional railway,
leading to reductions in passenger services on the conventional rail network (Vickerman,
1997). For example, on the Jinan-Qingdao HSR, over 90% of the traffic on the new line
was diverted from other rail lines (Table 7), while the numbers are over 50% for bothroutes on Wuhan-Guangzhou and Beijing-Tianjin (Table 5 & 6).
In some cases, the traffic generation effect of new HSR services is substantial. On the
Wuhan-Guangzhou route, total rail traffic within this transport OD pairs increased by 38%
one year after the opening of the HSR services, of which a total of 4% is related to thetrend of growth and 34% is considered as induced and shifted traffic from other modes.
Also on the Beijing-Tianjin route, total rail traffic within this rail transport OD pair increased
by 71.52% one year after the opening of the HSR services. A total of 5% is related to thetrend of growth and 66% is considered as induced and shifted traffic from road. Some
informal investigations show that quite a large part of the new generated traffic for WuhanGuangzhou HSR is from tourism, induced by shorter travel time and better quality ofservice. Further, at the beginning when the Beijing-Tianjin HSR started in service, part of
the generated traffic was related to passengers who were just curious about the experienceof riding the new HSR train service.

16

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Table 5. Estimate of the composition of Wuhan-Guangzhou HS traffic in 2010
Diverted from conventional lines

52%

Diverted from aircraft

6%

Generated or shifted from road42%

The air traffic in the Wuhan and Guangzhou corridor was reduced by about 50%, of which
the air traffic between Wuhan and Guangzhou OD was reduced about 40% while thatbetween Changsha and Guangzhou OD was reduced 60% (Wu, Cui, etc., 2011).
Table 6. Composition of Beijing-Tianjin HS traffic from 2009 to 2011
2009

2010

2011

Diverted from conventional lines

55.39%

49.76%

47.73%

Generated or shifted from road

44.61%

50.24%

52.27%

inc. road

11.09%

9.50%

8.68%

inc. generated

33.53%

40.74%

43.59%

Table 7. Composition of Jinan-Qingdao HS traffic in 2012
Diverted from conventional lines

93.61%

Generated or shifted from road

6.39%

The competition between HSR and air
In the EU, one of the two desires for building a new high speed line is to compete with air
in the major railway corridors, which has been proved very successful. Table 8 indicates themarket shares of plane and train before and after the introduction of high speed rail. The
impact on rail market share is very substantial (Nash, 2009). Moreover, the figures in table
X demonstrate that when journey times are within 4 hours (or with a distance less than
800 km), HSR tends to have a rail/air market share of at least 60%, and sometimes
effectively drives air out of the market when rail journey times are below three hours. Thisis also the case in Japan.

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201317

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Table 8. Before and after rail/air market share comparison in France and SpainTGV Sud-Est
BeforeAVE Madrid-Seville

After

Before

After

Plane

44%

9%

71%

20%

Train

56%

91%

29%

80%

Source: COST318 (1998)

Table 9. Travel time (distance) and rail/air market share in EU and JapanOD pair

Travel time on board(h)Rail/air share %Distance (km)

1.4

95

310

2

90

430

Madrid-Seville

2.25

82

471

Paris-London

2.65

70

494

3

60

455

Tokyo-Osaka

2.5

85

515

Tokyo-Hiroshima

3.85

56

894

Rome-Bologne

2.55

74

358

Paris-Amsterdam

4

45

450

4.5

38

560

Paris-Bruxelles
Paris-Lyon

Stockholm-Goteborg

Rome-Milan

In China, the rail share increases very impressively after the introduction of HSR on themain truck lines, such as Wuhan-Guangzhou transport corridor since 2009 and BeijingShanghai transport corridor since 2011. As indicated in Table 5,the air traffic share in the
Wuhan-Guangzhou corridor was reduced from 7.01% to 2.86%, of which the air traffic
between Wuhan - Guangzhou OD (1 000km) was reduced about 40% while that between
Changsha - Guangzhou OD (700km) was reduced 60% (Wu, Cui, etc., 2011).
Table 10. Before and after 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%

100.00%100.00%Total

For the Beijing-Shanghai transport corridor, Figure 10 shows that the rail shares of 3 ODs,
namely Beijing-Xuzhou, Beijing-Nanjing and Beijing-Shanghai, were in the trend of
declining at different extent until 2011 when the HSRs were put into operation.

18

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Figure 10. Before and after rail/air market share on the major ODs of Beijing-Shanghai corridor

Before and after rail/air market share on the major ODs along BeijingShanghai corridor

Xuzhou-rail

1
0.9

Xuzhou-air

Market share

0.8
0.7

Nanjingrail

0.6
0.5

Najing-air

0.4
0.3

Shanghairail

0.2
0.1
0
2007

2008

2009

2010

2011

2012

Shanghaiair

Main sources: 1. The Civil Aviation Publishing House in China, 2010-2013,The Annual Statistics of Civil Aviation in China. 2.
Authors’estimation based on the data collected from various websites, including JPSKB.

Further, the data in table 11 illustrate that the actual impact of HSR to air traffic along the
Beijing-Shanghai transport corridor is much stronger than forecasted by some experts(Peng and Hu, 2009; Ding, etc., 2013,). It seems clear that in China HSR tends to have amarket share of about 80% when rail journey times are within 4 hours or travel distancearound 1 000km, which is significantly higher or longer than those of the EU and Japan.
7This can be explained by the HSR’s rather cheaper price and higher frequency whencompared with the air (Appendix 5) and also the heavy airport delay that happened so
frequently in recent years.

7.

Further deregulation both in air tariff and in air market by the introduction of low cost carriers
to compete with HSR on the main transport corridors has been proposed by some experts from
air industry.

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201319

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Table 11. Change of rail/air market share and airport’s impact caused by Beijing-Shanghai HSR
Market Share %Rail
distance
to Beijing

AirportRailjourneytime toBeijing

Expected Impact
to air before

Before(2010)

After (2012)

Rail

Air

Rail

Air

Actual impact
to 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%

Source:1. Ding, etc., 2013.
2. The Civil Aviation Publishing House in China, 2010-2013,The Annual Statistics of Civil Aviation in China;
3. Authors’ estimation based on the data collected from JPSKB.

5.2

Time savings

5.2.1

Estimation of VOT in China

8

In European countries, numerous studies have been undertaken into the value passengers
place on time savings (VOT). For travel in working time, it is usually assumed that thevalue is what the employer pays for the time in question (i.e. the wage rate plus theoverhead cost of employing labour). In China, there is neither an official parameter for VOT
nor a reliable specific study in this field. However, the willingness to pay principle for
estimating VOT was written in the government document for railway project evaluation(MOHURC, NDRC and MOR, 2012) and the common practice is to use the average hourly
wage plus welfare payment of employee in urban units for business travellers and 30%50% for non-business travellers, as an estimate of VOT. Accordingly, we estimate theaverage VOT of business traveller in different provinces in Euros/h and divided them into 5groups (Figure 11).

8.
20

Based on (Wu, Nash, and Wang, 2013)
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Figure 11. Estimate average VOT of business traveler in different provinces
Estimate average VOT of business traveller in different provincesof 2011 (Euros/h)
16

15

14

No. of Provinces

12

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

10
8

8
6

4

4

3

2

1

0
A

B

C

D

E

Source: China Statistics Year Book, 2011

Figure 11 shows that China, despite its astonishing economic growth in recent decades,
remains a relatively poor country and values of time remain low by European standards;
moreover they differ enormously between regions. Further, there could be also large
income gaps within the same province. As it is indicated in Figure 12, the VOT of thehighest income group in Shanghai could be as high as 18.21 Euros/h, while the VOT of thelowest group could be lower than 1 Euros/h in provinces like Gansu, Henan and Sichuan,
which will be about one twentieth of that in Shanghai.

Figure 12. The unbalanced distribution of estimated VOT within the same province

20

16
China

14

Beijing

12

Shanxi(Euro/h)Estimated VOT (Euro/h)18

Jiangsu

10

Shanghai

8

GuangdongHenan

6Shaanxi

4

Sichuan

2

Gansu

0
Lowest 20%

Middle low 20%

Middle 20%

Middle high20%

Highest 20%

Income group

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201321

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

5.2. 2.

Estimation of the time savings per passenger

Before the introduction of the HST, the Chinese Ministry of Railways has carried out
7 rounds of raising train speed in the existing lines. The maximum technical speed ofconventional train (CT) could reached to 200 km/h or even 250 km/h for EMU in some partof the main truck lines, such as Beijing-Shanghai, Beijing-Wuhan. Accordingly, the average
operational speed of CT was 120 km/h on the main truck lines, while those of CT on
Beijing-Shanghai and Beijing-Guangzhou were 138 km/h, 136 km/h respectively.
Table 12 lists the estimate result of average value of time saving per passenger for a 500
9km journey in Euro when we compare the HSR train with the fast CT .

9.

22

We assume that the business/leisure traveller split is 50/50, and value of leisure travel is 50%
of business travel shown in Figure 11.
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Table 12. Estimation of average value of time saving per passenger for a 500 km journey (Euros)

Time savings
per trip

Average
VOT

Value of time
saved per 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

Source: 1. He, H., (2007)；
2. Authors’ study based on the data collected from JPSKB

5.3.
Estimation of the break even traffic required to justify the investment of ahigh speed line only in terms of time savings (Wu, Nash andWang. 2013)
Based on the methodology developed by de Rus and Nombela (2007), we built thefollowing formula:Qi  t  VOTi
 IC
(1   ) i 1
i 1
T

B

(1)

B : Total net benefits of a HSR project in its project evaluation period; : Project evaluation period,  = 50 year;

Qi : Demand in i year and Qi 1  Qi  (1   i ) i : Annual growth rate of traffic; assumption of 5.4% for next 50 years
t : Average travel time saving per passenger;
VOTi : Average value of travel time in year i and VOTi 1  VOTi  (1   i ) ; i : Average growth rate of personal income; assumption of 4.45% for next 50 years
I C : Total investment cost of a HSR line; : Social discount rate, 8% in China
If we assume that an average passenger trip is 500km, we can compare the infrastructure
construction cost with the benefits of time savings. Based on formula (1) and theassumptions we have made above, if B=0, or NPV≥0, then we can draw a set of curves
illustrating the relationship between an average demand thresholds ( Qb ) and VOT for apositive NPV during the project evaluation period, ignoring any increase in operating costs.
(Figure 13)
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201323

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Figure 13. Estimation of breakeven traffic level for different HSR lines in China
300

250

AverageQb(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

0
0

1

2

3

4

5

6

7

8

9

10

11

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

HSR (350kph)

Jing-Hu HSR

Wu-Guang HSR

Zheng-Xi HSR

From Figure 13, solely in terms of time savings, we can conclude that it would require of
the order of 90-100m passengers per annum to justify HSR even at 250km/h given typical
Chinese values of time. Even if we assumed that on average rail passengers had twice theincome of the population in general, at least 50m trips per annum would be needed. Onlyin the richest parts of the country, such as Beijing, Shanghai and Jiangsu province, arevalues of time high enough that HSR may be justified on the basis of time savings at thetraffic densities currently found.
5.4.

Additional capacity and its benefits

One of the advantages of building HSR is to transfer conventional passenger trains fromexisting lines to release capacity for freight trains, but in the Chinese case many
passengers of conventional trains refused to change to the passengers of the HSR with
350 km/h, mainly due to the high level of tariff (Figure 9) and because the lower axle load
limitation of HSL with 350 km/h prohibits the conventional passenger trains to run on it.
Accordingly, a large number of conventional trains have to be kept running on the existinglines (Table 13). So it is difficult to free up substantial capacity for freight trains on most of
the existing lines. For the HSRs in operation, the additional revenue cargo volume that canbe actually achieved in recent years is quite low, between one third and one tenth of that
expected (Wu and Wang, 2010). One of the problems is that high speed lines have only
been built on some sections, and bottlenecks remain elsewhere on the main freight routes.
Obviously, when a more complete network is open, and if there were not such apronounced difference in fares, HSR might provide more relief to existing lines. However, italso means that more investment is needed to complete the rest of the HSR network and24

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

that maybe more financial loss has to be expected when the whole HSR network would be
put into operation.

Table 13. Before and after CT numbers on the selected existing conventional lines
Before(no. of CT)

Conventional line

After(no. of CT)

ChangeWuhan-Guangzhou

32

28-12.5%

Zhengzhou-Xi’an

48

43-10.4%

Beijing-Shanghai

62-66.6%

8673-15.1%

Total

5.5.

Reduced externalities from other modes (Nash, 2009)

In the EU, it is frequently argued that HSR has substantial environmental advantages since
it diverts traffic from road and particularly air, where greenhouse gas emissions are muchgreater, however, a part of the traffic is diverted from conventional rail whose energy
consumption could be lower because of lower running. As Table 14 indicates, in Germany
HSR accounts for 30%-40% of energy consumption as air transport, and 150%-200%
energy consumption as conventional rail. At the same time, these figures are about 11%
and 60% respectively in France (SNCF, ADEME, 1997), mainly due to higher loader factor
and better infrastructure layout of the TGV system. So, whilst HSR can reduce externalities
from other modes, the degree of benefit varies from case to case.
Table 14. Energy consumption by mode 2010
Intercity train

HST

Air (500km)

Diesel car on
motorway

Seating capacity

434

377

99

5

Load factor

44%

49%

70%

36%

Primary energy (MJ per seat km)

0.22

0.53

1.8

0.34

MJ per passenger km

0.5

1.08(0.76*)

2.57

0.94

*At 70% load factor
Source: CE Delft (2003)

In China, an unofficial study made in a specific transport corridor shows that the unit
energy consumption of a HST, where given rather lower load factor and much higher
speeds, is more than 2.4 times higher than that of a conventional intercity train, although it
still has substantial environmental advantages when compared to air (Table 15).
Given the composition of the HS traffic from mode shifting and generation listed in Table 5,
6 and 7, the energy savings seem to be very limited. The introduction of HSR cannot leadto a substantial environmental advantage and where there is only limited diversion fromair, it will undoubtedly lead to an increase in energy consumption. So the objective to
reduce negative externalities will not happen unless HST can raise its load factor
substantially and shift huge traffic from the other modes, especially from potential future
car traffic, given the fact that about 70%-80% of electricity generation in China still rested
on coal in 2011.

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201325

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Table 15. Energy consumption by train and air on a specific transport corridor in 2010

Intercity train

High speed train

Air(900km)Maximum speed

160

350

700

Seating capacity

1200

600

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.a

0.61

1.28

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

5.6.

Wider economic impact

The wider economic impact of HSR in China could be greater than in the EU. This can bepartially illustrated by the much higher generated traffic along the more economic
advanced HSR corridors, such as Beijing-Tianjin, Wuhan-Guangzhou and Beijing-Shanghai.
However, it is still difficult to quantify it at this moment not only due to their short time
operation, but also because of the difficulty in separating the agglomeration economies
induced by HSR from other reasons, such as the additional large investment to othersectors. Officials from Dezhou city and Xuzhou city claimed that the land price around theirstations 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 a negative impact of HSR on regional
economic development, e.g. a decrease of the total tourism income from Mountain Tai in
Taian city was reported because of a dramatically reduction in the number of one night stay
tourists as the opening of HSR now makes the one day return trip possible. Most
importantly, we doubt whether the wider economic impact, even if it is rather substantial,
can compensate the heavy financial and economic loss that the large scale construction of
HSRs has brought to China.
5.7.

Some trial ex-post cost-benefit analysis of HSR projects

Up to now, there are no published ex post analyses on specific HSR projects in China andthe establishment of a system for cost benefit analyses of the HSR projects is still
underway. However, some trial studies in this field have been carried out on several HSR
projects when the 1st round of HSR projects were put into operation since 2008 (Wu andWang, 2010).
During the research process, we divided the HSR projects into 3 types (A, B, C) according
to their values of FIRR and EIRR. A summary of the appraisal is given in Table 16.

26

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Table 16. Ex post appraisal of HSR project in China
Project A

Project B

Project C

Ex ante

≥6%

≥6%

≥6%

Ex post6.00%

positive, butless than 3%

negative

Ex ante

≥20%

≥20%

≥20%

Ex post10.90%

10.00%

8.50%

FIRR

EIRR

In China, the official discount rate forfinancial evaluation is 3% and was
6% before 2006, while that foreconomic evaluation is 8% and was
12% before 2006. The rail project
evaluation period has been 25 years
since 2006

Source: 1.NDRC and MOHURD (2006). 2. Wu and Wang, 2010.

Table 16 shows that all the 3 projects were justified during the feasibility study stage, while
our ex post study indicates that only project A can be justified both financially and socially(Figure 14).
Figure 14. Total CBA for the HSR project A (with an ideal scenario)

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

Project B represents the case where both FIRR and EIRR are positive, but FIRR is less thanthe official rate. As Figure 15 shows project B’s financial net present value (NPV) is
negative, while its economic NPV, mainly composed of time and cost savings, is quite
substantial and can cover its financial loss. Therefore, this is a good social project although
it implies a financial loss.

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201327

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Figure 15. Total CBA for the HSR project B

Total CBA for the HSR project B
250

NPV (100 m. CNY)

200
150
100
50
0
Financial
benefit-50-100

Benefit from Time and cost Benefit from Total benefit
additionalsavings
reducedcapacity
externalities-150
Figure 16. Total CBA for the HSR project C

Total CBA for the HSR project C
100

NPV (100 m. CNY)

50
0
-50
-100

Financial
benefit

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

-150
-200
-250

Project C represents the case where FIRR is negative, while EIRR is marginally larger thanthe official rate. As Figure 16 shows project C’s financial NPV is negative, while theeconomic NPV is positive. Its economic benefits mainly come from additional capacity on
conventional rail for freight, while the environmental benefits are very limited. Here again
this is a social project, but the economic benefits cannot cover the financial loss.
28

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

6. SOME TENTATIVE CONCLUSIONS

From the preliminary studies undertaken and the four years of experience of HSR operationin China, it is possible to reach some tentative conclusions that could be useful for adeveloping country that is planning HSR projects.
Firstly, a comprehensive appraisal should be undertaken before investing in a HSR project.
Both demand for a large increase in rail capacity and a commercial need for higher speeds
are important for successful investment in HSR (Nash, 2009). These factors are especially
important in the case of a developing country.
The initial financial and economic performance of HSR in China indicates that deployment of
10
HSR throughout the country to high technical standards is unlikely to be justified . This
allies to most HSR lines built and to be built in the middle and west part of China, wheremost people are not rich enough to afford HSR tariffs that are much higher than for travelby conventional train.
Secondly, the commercial breakeven traffic density in China for the 350 km/h HSR lines isabout 40-50 million passenger trips per annum, while that for 250 km/h HSR lines is about
25-30 million passenger trips per annum. The unit construction cost and the level of debt
funding are the most important variables in determining the breakeven volume.
Thirdly, for a positive social cost-benefit ratio in China, solely in terms of time savings, itwould require of the order of 100 million passengers per annum to justify HSR. For a new
advanced conventional line (electrified double tracks for mixed traffic and a maximum
11
speed of 160 km/h for passenger trains) the figure is 28 million passengers per annum.
Fourthly, HSR in China seems to be more successful at competing with air than in the restof the world. In China HSR tends to have a market share of about 80% when rail journey
times are within 4 hours or travel distance around 1 000 km. This can be explained by thecheaper price and higher frequency of HSR in China when compared with air and also
severe delays at airports that are increasingly frequent.
Fifthly, the introduction of HSR in China is unlikely to have significant environmental
benefits unless load factors can be raised substantially and large volumes of traffic can beshifted from other modes in the future.
Sixthly, there is an urgent need to design and adopt a package of new HSR policies in
China, both for improving the operational, financial and economic efficiencies of the existing
HSR lines 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
10.

“HSR’s Great Leap Froward” has led to the former Ministry of Railways, now the Chinese
Railways Corporation, becoming very heavily in debt.

11.

The unit construction cost of advanced conventional lines is estimated at 5.5 m Euros per routekm in China

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201329

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

from central and regional governments will be needed not only for construction of
infrastructure but also for high speed train operations.
Finally, network effects and evaluation of the wider economic benefits of HSR are important
issues to be addressed for the future planning of HSR in China.

30

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Acknowledgments

I wish to acknowledge very helpful comments on an earlier draft by Chris Nash, Stephen
Perkins and Dong Wang.

REFERENCES

Campos, J. and De Rus, G.(2009), Some stylized facts about high-speed rail: A review of
HSR experiences around the world, Transport Policy 16 (2009) 19-28
De Rus, G and Nombela G.(2007),Is investment in high speed rail socially profitable?
Journal of Transport economics and Policy, Vol. 41, Part 1, January 2007, pp. 3-23
COST318 (1998) Interaction between High Speed Rail and Air Passenger Transport:
European Commission: Directorate General of Transport.
De Rus, G and Nombela G.(2007),Is investment in high speed rail socially profitable?
Journal of Transport economics and Policy, Vol. 41, Part 1, January 2007, pp. 3-23
Ding, J., Jin, F., etc., 2013, Competition game of high-speed rail and civil aviation and Its
spatial effect —A case study of Beijing-Shanghai high-speed rail, Economic geography(Chi), Vol.33, No.5, 2013
Givoni , M (2006), Development of the modern high-speed train: A Review, Transport
Reviews, 26(5)He, H.(2007), Technology on raising train speed to 200km/h in the existing lines in China,
China Railway Publishing House, p 18
INFRS/IWW (2004), “External Costs of Transport”, Update Study, Final Report,
Zurich/Karlsruhe, 2004
Liu, J.(2010), Cost analysis of high-speed railway & passenger dedicated line projects,
Journal of Railway Engineering Cost Management, No.3, Vol 25, 20-23,
MOHURD, NDRC, and MOR (2012), The methodology and parameter for economic
evaluation on railway project (the third edition), China Planning Publishing House
NDRC and MOHURD (2006), The methodology and parameter for economic evaluation on
project (the third edition), China Planning Publishing House
Nash C （2009），“When to Invest in High-Speed Rail Links and Networks? Discussion
Paper 2009-16，OECD/ITF, 2009
Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201331

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Nash C., Shires J. etc (2008), "Social cost of railways relative to other modes of transport”,
Draft final reportPeng, Zh. and Hu,H.,2009, The analysis of HSR’s impact on air transport market, Journal ofcomprehensive transport(Chi), 2009，31(7)：70-75.
Rong, C. and Wu J. (2012), China Railway debt crisis intervention and approaches tofacilitating the railway reform, Journal of comprehensive transport (Chi), 1st edition,
2012, 27-32.
Union Internationale des Chemins de fer（UIC）, International Railway Statistics 2009 and2010
Vickerman, R. (1997) High-speed rail in Europe: experience and issues for future
development, Annals of Regional Science, 31, pp. 21(R) C38
Wang, Y (2009), Analyses and suggestions on investment control in railway project, Journalof Railway Engineering Cost Management, 2009,No.3, Vol 24 ,1-4,
Wu, J., Cui, W., and etc.(2011), The relationship between HSR and Air, Working paper
2011(Chi)
Wu, J., Nash, C. and Wang, D., ( 2013,) Is High Speed Rail an appropriate solution to
China’s rail capacity problems?, Unpublished paper
Wu, J. and Wang, D.(2010), The research on the operational model and project evaluationof the high speed railway network, Working paper 2010(Chi).
Wu, J. and Rong ,C.(2013), MOR’s debt crisis and its relevance for railways reform in
China, 13th WCTR, July 2013,Rio de Janeiro, Brazil

32

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Appendix 1.
HSR construction, design speed and HSR scale in China by 2012

HSR Line

Time forstarting
construction

Designspeed (kmph)

Length(km)

Time for
opening into
traffic

1

Hefei-Nanjing

2005.07250

156

2008.042

Beijing-Tianjin

2005.07350

120

2008.083

Qingdao-Jinan

2006

250

393

2008.12

4

Shijiazhuang-Taiyuan

2005.06

250

190

2009.04

5

Hefei-Wuhan

2005.10250

333

2009.04

6

Coastal HSL

2004.12250

650

2009.09

7

Wuhan-Guangzhou

2005.06

350

980

2009.128

Zhengzhou-Xi’an

2005.09350

456

2010.01

9

Fuzhou-Xiamen

2005.09250

275

2010.0410

Chengdu-Dujiangyan

2008.11250

67

2010.05

11

Shanghai-Nanjing

2008.07

350

300

2010.07

12

Nanchang-Jiujiang2007.06250

131

2010.09

13

Shanghai-Hangzhou

2009.02350

154

2010.10

14

Changchun-Jilin

2007

250

96

2010.11

15

Hainan East Circle

2007.09250

308

2010.1216

Beijing-Shanghai

2008.04

≥350

1318

2011.07

17

Guangzhou-Shenzhen

2005.12350

104

2011.1218

Wuhan-Yichang

2008.09250

293

2012.07

19

Hefei-Bengbu

2009.01250

1312012.1020

Zhengzhou-Wuhan

2008.09350

536

2012.09

21

Harbin-Dalian

2007.08350

921

2012.1222

Beijing-Zhengzhou

2008.09350

684

2012.12Major sources:

1. MOR’s documents on issuing railway bonds;
2. Study data by author

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201333

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Appendix 2.
HSR infrastructure construction cost in China by 2012

HS LineDesignspeed(kmph)

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

1

Hefei-Nanjing

250

156

6.03

2

Qingdao-Jinan

250

393

6.27

3

Shijiazhuang-Taiyuan

250

190

14.48

4

Hefei-Wuhan

250

333

7.00

5

Coastal HSL

250

650

7.24

6

Fuzhou-Xiamen

250

275

7.24

7

Chengdu-Dujiangyan

250

67

18.10

8

Nanchang-Jiujiang

250

131

7.24

9

Changchun-Jilin

250

96

10.81

10

Hainan East Circle

250

308

8.69

11

Wuhan-Yichang

250

293

9.78

12

Hefei-Bengbu

250

131

12.53

Average construction cost of the HSL with 250kph

8.84

1

Beijing-Tianjin

350

120

20.51

2

Wuhan-Guangzhou

350

1068

15.69

3

Zhengzhou-Xi’an

350

456

12.07

4

Shanghai-Nanjing

350

300

18.10

5

Shanghai-Hangzhou

350

154

22.93

6

Guangzhou-Shenzhen

350

104

27.57

7

Zhengzhou-Wuhan

350

536

15.66

8

Harbin-Dalian

350

921

13.30

9

Beijing-Zhengzhou

350

684

15.66

10

Beijing-Shanghai

≥350

1318

19.31

Average construction cost of the HSL with 350kph

16.50*Euro exchange rate to CNY was about 8.28788 on 2010-06-30
Major sources: 1. MOR’s documents on issuing railway bonds; 2. Study data by author

34

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

Estimation of traffic density on selected HS lines from 2010 to 2012
Year 2010

HS lines

Designspeed(kmph)

Year 2011

Daily number oftrainsEstimated traffic
density

HST
*

CT
*

11

8

m. pass
per
annum
11.93

Year 2012
Estimatedtraffic
density

Daily number oftrainsEstimatedtraffic
density

Daily numberof trains

Averageannualincreaserate

Hefei-Nanjing

250

Total
(pairs)19

Beijing-Tianjin

350

68

68

0

19.80

85

85

Qingdao-Jinan

250

37

17

20

21.46

45

27

18

25.23

48

30

18

28.03

14.29%

Shi-Tai

250

24

13

11

13.67

35

13

22

21.22

38

14

24

22.60

28.60%

Hefei-Wuhan

250

12

10

2

6.45

26

20

6

9.81

27

18

9

11.04

30.78%

Coastal HSL
WuhanGuangzhou
Zhengzhou-Xi’an
ChengduDujiangyan
Shanghai-Nanjing
ShanghaiHangzhou
Nanchang-Jiujiang

250

20

20

14.45

32

32

15.13

37

37

15.13

2.30%

350

48

48

9.46

50

50

13.14

75

75

19.71

44.34%

350

7

7

1.84

12

12

3.68

18.75

18.75

5.75

76.78%

250

14

14

3.68

17

17

4.47

18

18

4.73

13.39%

350

82

82

25.40

92

92

26.86

100

100

29.20

7.21%

350

33

33

12.53

89

89

28.59

88

88

28.27

50.21%

250

43

0

30.13

49

11

32.85

47

13

30.22

0.15%

Changchun-Jilin

250

31

31

8.15

32

32

8.41

3.23%

Hainan East Circle

250

35

32

6.66

28

27

6.44

-3.29%

Beijing-Shanghai

≥350

74

74

22.17

86

86

24.81

20.52%

43

Total(pairs)HSTCT

m. pass per
annum

Total
(pairs)HSTCT

m. pass per
annum

36

26

10

16.99

55

42

13

21.29

33.59%

20.22

96

96

21.02

3.05%

38
3

34
1

HST* for high speed train, CT* for conventional Train.
Main source: Authors’ estimation based on the data collected from various Websites, including JPSKB (极品时刻表), an electric train time table in China.

THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS–

RECOMMENDATIONS ON ROAD SAFETY – © OECD/ITF, 2008

Appendix 3.

35

The Estimation of break-even traffic density of HSR in China via international comparison

TokaidoShinkansen*

ParisLyon
TGV*

BeijingShanghai
HSL

WuhanGuangzhou
HSL

QingdaoJinan
HSL

BeijingTianjin
HSL

ZhengzhouXi’an
HSL

China HSL
(with 350 kph)
in average

0.195

0.121

0.051

0.056

0.037

0.058

0.058

0.056

80

20

25

14

25

20

4

15.6

2.42

1.275

0.784

0.925

1.16

0.232

Unit construction
cost (m Euros /km)

34.00

15.20

19.31

15.69

6.27

20.51

12.07

15.68

Debt / Asset ratio

55%

n.a

n.a

50%

50%

50%-60%50%

50%-60%

Input/Output
ratio per Km **0.45890.1592

0.06600.05000.14750.05660.0192(Initial) financial
performance

Full recovery
of investment
within 8 years

FIRR=15%

Loss

Loss

Break-even

Loss

Loss

Break-even

Break-eventraffic density
corresponding to
I/O ratio=0.145(m pkm/km)

25.28

18.22

54.90

40.63

24.57

51.28

30.18

40.60

Tariff (Euro/pkm)
in 2010

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

Traffic density(m pass perannum) in 2010
Annual revenues
per Km (mEuro/Km)*: revaluation value in 2003**: refers to traffic revenue per line km of HS lines /construction cost per line km of HS lines

36

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 201336 – THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Appendix 4.

Appendix 5.
The Air and HSR Comparison between China (Beijing-Shanghai) and Japan (Tokaido and Sanyo Shinkansen)

O-D Pairs

Rail Distance
(km)

Air

Tokaido，Sanyo Shinkansen

Beijing--Shanghai
HSR

Daily
frequency（pairs)Travel time（h）Market Share
%
HSR

Air

HSR

Air

Tariff（JPY or CNY trip ）

HSR

Air*

HSR

Tokyo-Nagoya

366

0%

100%

0

120

Tokyo-Osaka

553

14%

86%

1

2.5

57

120

18800

13750

Tokyo-Okayama

733

18%

82%

1.25

3.27

18

61

23800

16360

Tokyo-Hiroshima

894

44%

56%

1.28

3.85

30

32

26300

18050

Tokyo-Fukuoka

1 180

88%

12%

1.58

4.97

47

17

31300

21720

Beijing-Jinan

406

2.08%

97.92%

1.1

1.63

2

58

317

125**-185***

Beijing-Xuzhou

692

2.42%

97.58%

1.60

2.85

1

31

615

215-310Beijing-Nanjing

1 023

21.13%

78.87%

2

4.1

13

60

676

315-445

Beijing-Wuxi

1 210

29.61%

70.39%

2.1

4.90

5

21

761

375-515

Beijing-Shanghai

1 318

57.29%

42.71%

2.17

5.53

48

54

789

410-555*: The air tariff in China=air distance*0.75CNY/pkm*0.75+fuel surcharge+airport tax;**: For the fare of HST with max speed of 250 kmph;***:For the fare of HST with max speed of 350 kmph.
Main source: 1.WANG Meijia,2009, Taking the Challenge of Rail Speeding, Airbus China;
2. The Civil Aviation Publishing House in China, 2010-2013, The Annual Statistics of Civil Aviation in China;
3. Authors’ estimation based on the data collected from various websites, including JPSKB.

The tariff level and estimated load factors of selected HSR lines in China in 2012
Tariff for 1st classin HST*(euro/pkm)

Tariff for 2ndclass in
HST(euro/pkm)

Hefei-Nanjing

250

0.057

0.047

Qingdao-Jinan

250

0.044

0.037

0.017

Shijiazhuang-Taiyuan

250

0.042

0.035

0.020

Coastal HSL

250

0.042

0.036

70

Chengdu-Dujiangyan

250

0.032

60

Nanchang-Jiujiang

250

0.042

0.035

0.019

0.009

250

0.042

0.034

0.018

0.008

60
60

90

Changchun-Jilin

0.045

0.037

0.019

0.009

65

93

HS Lines

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

Average level of the HST
and CT running on 250kph lines

Tariff for 2ndclass in fast
CT** (euro/pkm)

Tariff for 2ndclass in slow CT(euro/pkm)

Estimated loadfactor (%)

Design speed(kmph)

0.010

0.008

HST

CT
60

90

70

100

60

90

50

Beijing-Tianjin

350

0.066

0.055

Wuhan-Guangzhou

350

0.083

0.052

60

Zhengzhou-Xi’an

350

0.088

0.055

70

Shanghai-Nanjing

350

0.088

0.056

50

Beijing-Shanghai

≥350

0.085

0.051

70

0.082

0.054

55

Average level of the HST runningon 350kph or over lines* HST for high speed train, **CT for conventional train
Main source: Authors’ calculation based on the data collected from JPSKB （极品时刻表），an electric train time table in China

38

Jianghong WU — Discussion Paper 2013-28 — © OECD/ITF 2013

38 – THE FINANCIAL AND ECONOMIC ASSESSMENT OF CHINA’S HIGH SPEED RAIL INVESTMENTS

Appendix 6.

International Transport Forum
2 rue André Pascal
75775 Paris Cedex 16
itf.contact@oecd.org
www.internationaltransportforum.org