Once starved of investment, China’s rail network now has more money than projects readied to receive it. Of the US$60 billion earmarked for railway investment in 2006 and 2007, only US$48 billion was actually spent. Over the next two years, though, industry watchers expect every available dollar to be put to work in bringing rail up to speed.
"I believe the planned investment will be realized [between 2008 and 2010]," said Jack Xu, an infrastructure analyst at Sinopac, a Taiwan bank. China’s two listed railway contractors, China Railway Group and China Railway Construction, are already operating at full capacity, Xu added.
Dedicated high-speed passenger lines are the crown jewels of the new investment. One such link already runs between Beijing and Tianjin and more are being built. The 1,138km Beijing-Shanghai line, which began construction in April 2008, is the most anticipated. It will cut travel time between the cities to under five hours.
Zhang Jianwei, president of Bombardier China, says high-speed rail development is a government priority. "The lack of railway transportation capacity is still a bottleneck to economic development … the capacity does not satisfy the need."
As much of a boon as these links are for passengers, they could have painful side-effects for China’s airlines. High-speed rail links along the country’s busiest corridors are one more worry for carriers already competing for few profitable routes.
All three major domestic airlines – China Southern, China Eastern and Air China – are heavily in debt. All posted third-quarter losses due to fuel price pressure and falling passenger and cargo numbers.
Competitive threat
While average passenger load ratios are typically in the low 70s, some routes are overcrowded. The busiest may be Beijing-Shanghai, serviced by more than 50 daily flights, but it is also the route likely to face the most competition from high-speed trains.
Flights between the two cities take about two hours. Add in airport commutes and check-in times, and travel time is not much less than on a high-speed train. Frequent flight delays tilt the balance even further in trains’ favor, said Martin Wang, an aviation analyst at Guotai Junan Securities.
Although there is room for growth in China’s airline industry – total passenger numbers equated to just 14% of the population in 2007, against 200% in the US – domestic carriers are inefficient and operate loss-making routes to increase market share.
Still, Michael Wu, director of Asia Pacific corporate at Fitch Ratings, believes competition from trains will be more of a long-term threat focused on specific routes. Wu points to Japan, where high-speed trains operate alongside profitable airlines
His optimism doesn’t stretch to smaller carriers. "Marginal airlines will be screwed," Wu said.