The cut in the railway ministry’s infrastructure budget for this year is 100 billion yuan ($15.4 billion), according to He Huawu, the ministry’s chief engineer, Caijing reports. The Economic Observer had earlier reported that twice that amount had been cut from the 700 million yuan budget, with the ministry saying only that the number was inaccurate. He’s number still represents a 14.3% cut, and is evidence that some projects in the buildout of the much-criticized and scandal-plagued high-speed rail network will be halted, more particularly that some not started will be shelved.
Companies run by the ministry reported a 3.8 billion yuan loss in the first quarter of this year, the ministry has announced. The loss covers operating costs; surging fuel prices were a contributory factor and another reason that railways minister Sheng Guangzu has proposed slowing the speed of high-speed trains to cut costs. Higher steel prices would have raised construction costs, too.
While the ministry has not announced its full-year results for 2010, Caixin quotes a figure of 20 billion yuan and says a larger loss is expected for this year.
Total debt was 2 trillion yuan at the end of the first quarter, mostly incurred in the buildout of the high-speed rail network, against 3.4 trillion of assets, a 58% debt ratio that is higher than the number Sheng had given in March. Fixed-asset investment totaled 121.6 billion yuan at the end of the first quarter, up 36.5% from a year earlier. It is impossible to tell from those numbers if the slow down in the buildout has yet started.
Update: The Ministry of Railways has confirmed that its infrastructure budget will be 600 billion yuan this year, which would be a 100 billion yuan cut on the previously announced number. Total investment, at 745.5 billion yuan, will be 12% less than initially planned.
The railway ministry’s tepid denial of an Economic Observer report that the ministry is having 29% of its infrastructure budget for the year cut suggests to this Bystander that planned new high-speed rail projects that have not yet started will not go ahead. The ministry said only that the publication’s report of a $200 million yuan cut in its 700 million yuan of planned spending was an inaccurate number.
Slowing the helter-skelter expansion of the network would fit with railways minister Sheng Guangzu’s publicly expressed view that priority should be given to new projects that either met a priority economic development need or filled a gap in the network where lines would benefit from being linked up. Sheng’s approach stands in contrast to that of his scandal-plagued predecessor, Liu Zhijun, who was overseeing a rapid build-out of the country’s high-speed network before his sacking in February. Of the 70 new projects in the offing for the year before Liu’s removal, 15 were high-speed lines.
There is no suggestion that railway projects underway would be halted or cut back, despite widespread concerns about the debt the rail system is taking on. However, Sheng has already proposed slowing high-speed trains’ speeds to lower operating costs. He now seems to be send new projects down the same track.
Though the didn’t use the analogy, Sheng Guangzu, head of China’s railways ministry, has raised the spectre that the country’s fast-expanding but scandal-plagued high-speed rail network could be another Concorde, the pioneering supersonic Anglo-French passenger jet of the 1960s that proved too expensive to run in commercial service once the 1970s’ oil shocks quadrupled fuel prices.
Telling the People’s Daily that speed restrictions would be placed on the trains to make them most cost-efficient, Sheng said that trains running at 350 kph consume twice as much energy as those traveling at 200 kph. Slowing them up will save both on power costs and maintenance. Speeds are to be cut back from upwards of 350 kph to 200 kph-250 kph with a maximum of 300 kph.
Cost savings are to be passed on to passengers through lower ticket prices, Sheng said. The minister will hope that that will fill the many empty seats left vacant by travelers who complain that ticket prices on high-speed trains are exorbitant and who have voted with their backsides, so to speak. Sheng gave no details, but fares might come down to merely expensive.
The new five-year plan calls for the expansion of the high-speed rail network from the current 8,358 kilometers to more than 16,000 kilometers. Given, first, that the construction of lines able to accommodate trains traveling at 350 kph costs 100 million yuan ($15 million) per kilometer, much higher than for lines designed for 200 kph trains, according to Ren Shaoqiang, chief engineer of China Railway 20th Group Co., one of the companies building high-speed lines, and, second, that there is growing concern about the debt the rail system is taking on to finance its build out and about whether the whole system will turn out to be as much a commercial white elephant as Concorde was, we wonder whether Sheng’s remarks presage an overall slowing of the high-speed rail expansion.
It appears that it is full steam ahead for China’s high-speed rail network despite the bribery and corruption investigation around sacked railways minister Liu Zhijun. His replacement Sheng Guangzu says development will continue to plan. Shen also said that the ministry’s affiliated railway companies were holding 1.8 trillion yuan ($275 billion) in debt, which amounts to 56% of their assets–within “the safety zone”, according to Sheng. That said, the bank regulator, China Banking Regulatory Commission, has told banks to review their lending to high-speed rail projects.
Footnote: Our man in New York reminds us that America’s railway building boom in the 19th century, and particularly the transcontinental Union Pacific Railroad, was afflicted by bribery and corruption. The most notorious incident was the Credit Mobilier of America scandal in the 1860-70s in which 13 members of the U.S. Congress were implicated.