reduces communication costs between regions rather than trade costs. _(2) Mainly used for business purposes:_ Survey data indicates that nearly half of HSR travel is for business purposes, with leisure and commuting making up the remaining major segments (Lawrence et al., 2019; Lin, 2017).7 _(3) Designed for middle-distance journeys:_ As pointed out by Lawrence et al. (2019), HSR dominates travel between 150 km and 800 km and competes with air travel for distances up to 1,200 km.8 _(4) Frequent, convenient, punctual, safe and high-quality service:_ Compared to airlines, HSR is less impacted by weather, features simpler security checks, and involves shorter waiting times. Unlike airports, HSR stations are centrally located, offering more convenient access. Passengers can also use phones and the internet during travel, reducing the opportunity cost of time—an advantage particularly valuable for business travelers.9 _(5) Stable and relatively low price:_ HSR fares in China are relatively low compared to other countries, making it an attractive option for passengers across various income levels.

In short, the expansion of HSR has had a profound impact on business travel, reshaping the flow of information and business opportunities across regions in China. This development has facilitated better matching between production and consumption, as well as between different production hubs.10

**Network Effects of the HSR** Beyond these important attributes, the most defining feature of HSR is its _network effects_ . While direct HSR connections between cities are crucial, the value of indirect connections –whether through transfers across multiple HSR lines or integration with other transport modes –plays an even bigger role. For instance, the Zhengzhou-Xi’an line was initially an isolated route, serving only passengers between these two cities. However, after connecting to the BeijingGuangzhou HSR line in 2013, its passenger volume surged by 43 percent, and passenger-kilometers increased by 72 percent. By 2016, almost half of the passengers on the Zhengzhou-Xi’an line were traveling from stations beyond the immediate route (Lawrence et al., 2019).

Given the network characteristics of HSR, the effect of an HSR opening in a city on firms’ DVAR depends not only on direct connections but also on the extent of indirect links across multiple lines. It also hinges on how many firms in those connected prefectures have potential IO linkages with the initial firm. Figure A1a illustrates the number of prefecture pairs connected via HSR, both directly and indirectly, over the sample period. As shown in Figure A1b, HSR construction surged after the financial crisis, steadily increasing the number of prefecture pairs connected both directly and

> 7Ouyang et al. (2024) present recent evidence from a survey of corporate managers, revealing that site visits are crucial for both suppliers and customers in overcoming information asymmetry. These visits play a key role in building and maintaining supplier-customer relationships, especially for middle-to-long distance travel, ranging from 200 to 500 km. 8In 2013, the average travel distance on the Beijing-Shanghai and Beijing-Guangzhou lines, two of the most important HSR routes in China, was around 500 km. Amos et al. (2010) suggests that HSR holds a comparative advantage over airlines for trips under 800 km.

> 9Fang et al. (2023) highlights that delays are a persistent issue in China’s airline industry, making the punctuality and convenience of HSR a significant competitive threat to air travel.

> 10Business interviews conducted in cities newly connected to HSR, as summarized by Lawrence et al. (2019), reveal that while HSR has limited influence on the location choices of manufacturing firms, it significantly boosts business travel. Sales, procurement, and professional service staff, in particular, heavily rely on HSR for their travel needs.

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