CHINA'S EXPANDING RAILWAY SYSTEM: THE SIGNIFICANCE
December 17, 2009

 

Summary

China's Second Urumqi-Jinghe railway became operational Dec. 6, according to the Xinjiang Railway Bureau. The 381.5 kilometers rail line links the country's far western provinces to its eastern regions and expands westward to Central Asia and Europe. The expansion will better connect the country's disparate regions, provide an economic stimulus during the downturn and assist security forces in projecting internal -- and external -- power. But the challenge of efficiently running the rail network remains.

Analysis

China now has one of the biggest railway systems in the world, ranking only behind the United States in tons hauled per kilometer. The system connects the country across its vast distances, from Manchuria in the northeast, to the north, south and central regions, and now to the far western provinces of Xinjiang. In 2006, Tibet -- the one exception -- was brought into the loop with a line finally completed to the Tibetan capital Lhasa.

China's expansion of its railway system serves three critical strategic interests: it links up the poorer western regions with the more prosperous coastal areas; it provides jobs during the economic downturn; and it allows the Chinese military and security services the ability to better project power both within the country's borders and outside them if necessary. While China may have no problem building and paying for the expanded rail system, the matter of whether the system is run properly is another issue entirely.

 

Regional Imbalances

As with the overall Chinese economy, the railway system suffers from regional imbalances, primarily between the high consumption coastal industrial centers and the low consumption but resource-producing interior areas.

The vast majority of both passenger and freight traffic flows in two streams between the south near Guangzhou and an arc along the east coast between Shanghai and Beijing and Shenyang , while the interior regions have less traffic and lack quality service.

After shipping resources to the coastal consumption centers, trains often make the return trip to the interior with little cargo. Due to inadequate capacity and poor rail connections in some coal-producing regions (like Shaanxi), some high-energy-consuming southern provinces began in 2002 to import coal by ship from Australia rather than from domestic producers -- Guangdong province gets more than half of its coal from outside China. Coal is by far the number one freight of China's rail system (about half of the country's total freight) and given that coal supplies about 70 percent of China's total energy consumption, the railways are vital to the entire economy.

"Go West"

During the 1990s, the government invested about $52 billion into modernizing the rail system. Since 2000, when the "Go West" development strategy was launched to improve infrastructure in China's less wealthy western provinces, the total railway network has expanded from 20,000 to 30,000 kilometers, and plans call for 50,000 kilometers by 2020.

The expansion accelerated in 2009 with the onset of the global financial crisis. In November 2008, Beijing launched a massive government spending package to stimulate the sluggish economy. One component of the package was a fresh promise of 600 billion yuan ($88 billion) for rail expansion. Most notably, the new funds provided 358 billion yuan ($52 billion) for eight projects involving 4,600 kilometers of rail tracks in interior regions: building wholly new ones, doubling lines so as to separate passenger and freight, and upgrading the capacity of existing lines. Five of the eight projects are high-speed rail lines (part of a drive to build 42 new high-speed links by 2013).

(photos copyrighted by Stratford)

Progress has been quick. In the first half of the year, construction began on the Chengdu-Lanzhou line (with the high-speed line to be completed by 2014-2015) and the second Xi'an-Ankang line. In November, construction commenced on the Lijiang-Xianggelila, Lanzhou-Urumqi (a second line for passengers only), and Xi'an-Baoji (another high-speed project) connections.
The foremost importance of these eight projects is their domestic economic impact. The 2009 projects were expected to create six million jobs and necessitate 20 million tons of steel and 130 million tons of cement -- all during a time when construction would otherwise have ground to a halt as a result of the recession.

When coupled with all the supportive industries, these projects were estimated to add as much as 1.5 percent to growth of China's gross domestic product. While it is unclear whether this optimistic assessment has fulfilled expectations, the size and extent of the projects cannot be discounted. Moreover, by improving connectivity between regions and smoothing transportation across them, China is laying the groundwork for future growth in underdeveloped areas, long after the stimulus funds have been spent.

The new "Go West" rail plans are primarily meant to enhance transit across the country, bringing resources from the far west or the southwest to major consumption or processing centers, while benefiting the regions that host increasing commercial traffic. New railways will also enable better transit through the small southern province of Guizhou, a poor, difficult-to-access, mountainous region that lies between Yunnan and Sichuan and the coastal province of Guangxi, and between Lanzhou, Gansu province, and Urumqi, Xinjiang province. Gansu, in north central China, lies along the ancient Silk Road; Lanzhou serves as the rail hub linking the resource-rich far western Xinjiang, as well as connecting Kazakhstan and Central Asia, to the rest of China.

Other regions will serve as sources or destinations in themselves rather than as transit sites. Chengdu and the municipality of Chongqing both serve as rail hubs in the vibrant Sichuan basin region in China's southwest, which has a large population and economy and is also rich in natural resources. Improved rail connections here will link Sichuan's independent economic vibrancy with less prosperous neighbors, as well as make it easier for Sichuan to send workers and resources out of its borders. In addition, the Chinese government has targeted Kunming in southwestern Yunnan Province as a vital transport hub for tourism, mining and primary and secondary industries in South China. Kunming is the commercial point of contact for India, the Indian Ocean, as well as the Mekong region and broader Southeast Asia.

Meanwhile the government breathed new life into a number of rail projects that were waiting to break ground (such as the Chongqing-Guiyang and Kunming-Nanning connections), or projects that had been making only halting progress due to technical problems or complaints from citizens (such as the high-speed Shanghai-Nanjing link and the Wuhan-Guangzhou link, which were expedited and will be completed by the end of the year). Building is also scheduled to start soon on Lanzhou-Chongqing, Baoji-Chengdu, Sichuan-Qinghai and Sichuan-Tibet connections.

Security Considerations

While the primary reasons for the railway expansions are economic, there is an important military consequence. Rail is a crucial means of moving soldiers and heavy equipment and sustaining them efficiently -- while air transport is faster, it is limited to fewer people and lighter gear, and is more difficult to sustain logistically.

Military mobility is critical for a country like China, which has vast borders to defend and buffer regions to control, such as Manchuria, Inner Mongolia, and especially conflict-prone Xinjiang and Tibet. In addition to the need to maintain internal security in its own provinces, China has in recent decades fought battles on its Manchurian, North Korean, Russian, Indian and Vietnamese borders -- and the difficulty of logistics in these areas has not been lost on Chinese strategists as they conduct contingency planning.

The People's Liberation Army conducted a major military exercise in August called "Stride 2009," utilizing new high-speed trains that travel around 350 kilometers per hour. The exercise essentially involved swapping troops and equipment (heavy weapons, tanks, and infantry vehicles) from garrison to garrison along both the north-south (Shenyang-Lanzhou) and east-west (Jinan-Guangzhou) routes, highlighting the Chinese military planners' considered role for the expanded and upgraded rail infrastructure.

A Reform Stumbling Block

China has no problem building its rail system or paying for it -- its massive cash reserves and surfeit of cheap labor guarantee that. But the Ministry of Finance (MOR), the agency tasked with managing 83 percent of the country's railroads, retains the command-economy mentality from China's past far more so than other ministries. As such, attempts to increase the efficiency of the Chinese rail system have met with decidedly little success. The MOR remains largely unchanged despite two decades of government initiatives designed to increase competition for passenger services in different areas, bring in foreign investors, adjust the price structure to shift away from old-fashioned low tariffs, break off and commercialize non-transport services, and privatize passenger lines as opposed to freight.

The railways are divided into 14 regional administrations, a system that causes difficulties managing transport across administrative divisions. In addition, all decision-making and resource allocation are both centralized and bureaucratic. As a result, the system responds slowly to outside changes.

Overall China's railway system is unprofitable but serves an essential economic and strategic purpose and will continue to be amply subsidized despite the inefficiencies.

Copyright 2009 Stratfor.