But the aggressive campaign has added to the state-run operator’s total liabilities, which as of the end of 2021 reached 5.91 trillion yuan (US$882 billion), or around 5% of China’s gross domestic product. With the figure only expected to grow, concerns over China’s “hidden debt” loom over its economic outlook.
China Railway introduced a state-of-the-art express train to a section of its Beijing-Guangzhou High Speed Railway on June 20. With an operating speed of 350kph – 40kph faster than its predecessors – the train also outruns Japan’s fastest Hayabusa and Komachi shinkansen bullet trains.
China’s high-speed rail network, which exceeds 40,000km and is more than 10 times the size of Japan’s, grew by another 2,168km in 2021.
The network’s expansion shows little sign of slowing. China Railway plans to reach 50,000km in 2025 and 70,000km in 2035 – a roughly 70% jump from 2021.
This rapid growth comes as regional governments compete to attract new projects, in hopes of creating jobs and fostering related businesses. Many of China Railway’s top leaders, including chairman Lu Dongfu, are former transportation bureaucrats, and the company essentially functions like part of the government.
Meanwhile, concerns over debt and profitability have taken a back seat.
“The government’s priority is economic growth and it doesn’t care about debt repayment, but each kilometre of railway costs 120 million yuan to 130 million yuan to build,” said Zhao Jian, a professor at Beijing Jiaotong University and an expert on transportation. This means a 30,000km expansion will require roughly 3.6 trillion yuan.
China Railway is selling bonds to state-owned banks and brokerages to cover the cost. The Chinese government on May 31 announced comprehensive economic stimulus measures to lift China’s coronavirus-hit economy, including allowing China Railway to issue another 300 billion yuan worth of railway construction bonds.
Such “hidden debt” essentially allows the government to borrow money without adding to the official national debt. China Railway’s total liabilities grew 4% in 2021 to 5.91 trillion yuan, according to its financial report.
The company faces an uphill battle to repay those debts, after logging a 49.8 billion yuan net loss in 2021. Its passenger numbers were down 29% from pre-pandemic levels at 2.53 billion last year, and remained sluggish in January-March amid a wave of Covid-19 infections.
China Railway launched the new Huanggang-Huangmei high-speed rail link in central China on April 22. “Only a few dozen locals ride it a day,” a resident near one of its stations told Nikkei, adding that the link had not attracted new hotels and other businesses to the mostly agricultural area.
Under President Xi Jinping, the Chinese government is working to curb its debt problem even as it pushes to expand the country’s rail network. Chairman Lu last year told Chinese media that China Railway will closely monitor returns on investment and control the size of its debt in order to minimise risks.
Freight service is key to this plan. The company operated 22% more freight trains to Europe in 2021 than the year before and 8.9 times as many as in 2016. Groupwide revenue from freight service came to 435.9 billion yuan last year, outpacing the 302.1 billion yuan for passenger service.
China Railway has also listed several subsidiaries since 2020 in a bid to attract private-sector funds. Still, “a small amount of private funds will have little effect on China Railway, a massive state entity”, professor Zhao said.