Editors Note: Since the 2008 economic crisis, China’s government has promoted large-scale infrastructure projects, such as the construction of subway systems, as the country’s primary method of maintaining economic growth. Although it has been rather successful so far, in recent months, some industry specialists have begun to “wonder out loud” if the rate of China's infrastructure development is actually outweighing its social and economic necessity. It seems that none are more aware of this than the government, who recently has spoke less about infrastructural development and more about increasing the consumption of domestically produced goods within the country. Yes, China has the money to build all of these subways, but at what point does the cost of infrastructure development outweigh its benefit.

 

There is too much underground spring water in Jinan; Luoyang has too many ancient relics buried beneath it; Luzhou’s foundation is full of giant cave-like spaces. Basically, none these cities should be constructing a subway system. These are some of the thoughts that one industry expert recently told a reporter from the Economic Information Daily.  

Through interviewing this expert, the report found out that many city governments in China are really “jonesing” for their very own subway, as they think that a subway system is a status symbol of sorts, and the “grass is always greener” (in cities with subway systems) sort-of-phenomenon is only spreading. Many experts have expressed that cities should only construct subways as the local market demand merits it, and that each city should pay attention to its own unique situation before jumping head-first into development like a mindless swarm of bees.

Full steam ahead for China’s subway system

Dong Yan, the former Director of the National Development and Reform Commission’s (NDRC) Transportation Research Institute, recently commented that, according to estimations, in the near future, China will have roughly 229 cities with subway systems and an estimated total track length of 11,700 km.

A reporter from the Economic Information Daily noted the many cities currently at various stages of planning subway construction. Taiyuan's (the capital of Shanxi province) subway construction plan has already been submitted for the national examination and approval process. Shijiazhuang's (the capital of Hebei province) plan is in the process of being examined and commented on. In Xuzhou (the fourth largest city in Jiangsu province), the environmental impact assessment (EIA) for a subway has recently been announced. In Dali (a major city in Yunnan province), the Bai minority group’s autonomous prefecture is soliciting everyone’s ideas on the building of a subway. Haikou (the capital of Hainan province) this year began construction of their subway system. Baotou (a large city in Inner Mongolia) has planned to, by the end of the year, complete their subway plan and send it to the authorities to review. A document titled "Wenzhou city high-speed metro route network" has been prepared and construction of a subway system is slated to start in November. Even the ancient city of Luoyang (in Henan province), is also preparing a subway construction plan. 

Jiang Yukun, former director at the Beijing Subway Planning Research Institute told an Economic Information Daily reporter that there are a lot of third-tier cities, whom, even though a subway doesn’t fit their local factors and conditions, are still actively planning to develop a subway system (Zhuzhou in Hunan province and Jining in Shandong province are guilty of this).

Is a subway system really necessary?

The industry expert also noted that, there are some cities where building a subway system is not necessary, but that they want to build anyway. These local governments believe that a subway will singlehandedly spur huge economic development in the districts that it touches. Also, it seems that another “keeping up with the Joneses” phenomenon is prevalent, where subway lines are built all the way to the outskirts of a city in order to bolster the total mileage of track in that city. .

The cost of building a single kilometer of rail differs. For a subway line it costs 500 million RMB per km of rail; for light rail (above ground “L” trains) the cost is about 200 million RMB per km; and for a streetcar costs run at about 20 million RMB per km. The one-time investment cost for a rail system is astronomically huge, and the resulting high costs of operation, means that the rail might have a positive societal benefit, but that the local economic benefit is terrible. Figuring out how to make a subway profitable is a global issue, and the majority of the world’s subway systems rely on government subsidies to operate.

Professor Zhang Xiaode of the National School of Administration's Economic Research Department, told the Economic Information Daily that, "the 12th five year plan that calls for large-scale subway construction in developing cities has three risks: First, future economic development is always uncertain. Bank loans all steam from anticipations of future economic growth, but since the 12th five-year plan calls for economic development relying on such loans it will only increase risk more. Second, is the actually outcome of the investment. The profitability of city rail projects depends on the amount of urbanization and the population’s mobility, China's urbanization rates are currently experiencing a bubble, and if second-tier cities use the "me too" reason for building subways, and not the sound logic of market demand it will make the investment very risky. Third, if the Central Bank tightens up the money supply, some subway construction projects will not be able to fund themselves properly and will run the risk of becoming "incomplete" projects.

Vice-director Wu Yaping of the NDRC's Investment System and Policy Research Institute told the Economic Information Daily that subways need a lot of capital and that this results in large debt. Currently, the subway investment funding model still heavily relies on government investment and bank loans, creating huge pressure on the local governments that fund it.

Wu Yaping pointed out that subway construction projects should be funded by a combination of government investment, investment from the private sector and bond investment, and that these projects should follow a typical corporate management model. He further stressed that such large projects must be managed by a state-owned enterprise that follows the standard corporate management model. Subway construction plans also need to move away from indirect financing to direct financing; municipal bonds (bonds the city votes on) are especially good. In general, a successful subway project needs to move away from taking bank loans (who demand high returns) toward using social security funds and insurance funds whose investment portfolio often demands low return in exchange for low risk, exactly what a large infrastructure project like a subway project stands for.
 

Source: Economic Information Daily
 

Related links
Big Brother On Board, China’s New Subway Surveillance
80,000 RMB a Year Fails to Attract Subway Operators
China’s High-Speed Rail System: Golden Dragon or White Elephant?

Warning：The use of any news and articles published on eChinacities.com without written permission from eChinacities.com constitutes copyright infringement, and legal action can be taken.

Keywords: Infrastructural development China subway construction plans China China’s economic development