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The economic viability of high-speed rail project in China has come into questions thanks to mounting debt amid lower ridership, reckless expansion, and sluggish financial status. China State Railway Group (CSRG) has acknowledged that the debt-to-asset ratio still remain at 63.8 percent, which is higher than the healthy ratio of 50 percent. With the over-ambitious target of reaching 70,000-km highspeed rail network, China has been making haphazard investments, which has led to unsustainable debt.
Experts cautioned that the Chinese high-speed had become a giant money pit as the operator CSRG had reached close to USD1 trillion of debt. Notably, China has plans to build 70,000 km by 2035. The massive investment in high-speed rail is based on Chinese President Xi Jinping’s economic model of achieving growth through infrastructure spending. The high-speed rail expansion was intended to improve individual wealth as well as consolidate the China Communist Party’s power. However, it came at a very high cost—mounting debt and liabilities.
Zhao Jian, a scholar at Beijing Jiaotong University, had in 2019 criticised China for turning a blind eye to the system’s financial perils through unnecessary expansion of high-speed rail in not-so-crowded areas. “Having the world’s largest high-speed rail network with a low transportation density is indicative of significant financial risk. The ongoing construction of such a large high-speed network may place a greater debt burden on China Railway Corporation, which runs the network, and local governments, making it a “gray rhino,” or obvious threat to the Chinese economy,” he said.
Hong Kong-based businessman and author Desmond Shum said the reason for growing unsustainable loans was the local government’s plan to earn massive profit from the land sale after high-speed railway is built. “But with China’s real estate bubble effectively burst, this strategy has lost its momentum. Instead of the financial windfall they hoped for, local governments are left with debt—and a high-speed rail network that, while impressive, is struggling to pay for itself,” he said.
Jian’s warning appeared to have come true as the debt has reached almost USD 1 trillion now. These high-speed rail projects are co-funded by the local governments. Now the revenue generated by local governments has taken a dip thanks to real estate slump and economic slowdown. This has added burden on them, especially, in the wake of many high-speed rail projects failing to gain profits or even recover operating costs. So projects that are less than half complete are suspended, which however creates more problems. “The prospect of a build-up of stranded assets may add yet more strains to the finances,” the rating agency S&P Global.
Chinese high-speed rail projects which were once seen as a great harbinger of economic growth are now contributing massively to the debt crisis, said the Virginia-based Alliance for Innovation and Infrastructure. “China’s government is quick to brag about its high-speed rail network, by far the largest in the world, but most lines generate a loss and operate a fraction of the capacity. Only the lines between large cities generate profits, and the rural train stations are underused and contribute to local government debt,” it said.
Analysts and observers stressed the fact the Chinese high-speed rail project is failing to ensure a return on the investment made. China has kept on expanding the network of high-speed rail even though the ridership has shown no improvement. Wall Street Journal (WSJ) China correspondent Brian Spegele questioned the Beijing government’s focus on building new lines when the country’s population is projected to shrink by around 200 million people in the next three decades.
Chinese-American economist Davy Huang said the high-speed rail project required substantial maintenance funds even though they are being underused, which has worsened the debt problem. The continued push for big-ticket infrastructure project despite lower demand in the wake of real estate crisis, growing liabilities of local government and economic slowdown have raised the risk of an economic hard landing for China. In such a scenario, Shum said, the investment in high-speed rail has become precarious. He said “Now, as the bubble deflates, the trains keep running—but the bill is coming due.”
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