Don’t believe what you read about China

The tone of western reporting about Chinese high speed rail has been fairly negative.  Stories of safety concerns, lack of ridership, excessively high ticket prices that the Chinese cannot afford, inability to compete with the discount airlines, “white elephants,” etc.

The safety concerns always mention the Wenzhou accident, which means the evidence has a sample size of precisely one.  And as we just saw in Spain, accidents can happen anywhere.  Maybe China’s high speed rail is dangerous, but I don’t see the evidence.

When I took a high speed rail trip from Beijing to Shanghai last year, the system seemed far more crowded than during my previous HSR trip in 2009.  And this Credit Suisse article suggests that some of the ridership fears may be overdone:

China is already home to the world’s longest high-speed rail line and some of its fastest bullet trains, and the government is pouring billions of yuan into building new capacity. In fact, China plans to add more than 3,100 miles of high-speed rail track by 2015, bringing the total length of the system to about 9,000 miles. Meanwhile, China’s airlines are also growing rapidly, with nearly 100 new airports planned by 2020.  .  .  .

The major concern of the market is that the airlines will cut airfare to protect their market shares, and that load factors (a measure of how full flights are) could be substantially lower than the levels before the launch of high-speed rail,” they wrote. However, the analysts go on to say that such fears are probably unfounded. China’s fast-growing middle class is more mobile than ever, and should do enough traveling in the future to keep both sectors healthy. In addition, the competition will be most heated on short routes, a realm in which airlines have already shown a willingness to cut their losses early and avoid costly price wars.  .  .  .

Airlines Adapting Rapidly

Chinese airlines have already showed a canny knack for maintaining profit margins by quickly responding to increased competition. Last December, when China’s newest high-speed rail line opened – a 572-mile [900 kilometer] high-speed line connecting the northeastern cities of Harbin and Dalian – most airlines simply left the market, cutting routes that overlapped with the rail corridor and shifting planes to other, less competitive routes. “We see this swift capacity adjustment, instead of cutting their airfares and profit, as a good sign that airlines can be nimble in competing [with bullet trains],” Credit Suisse analysts wrote. “While rail will remain a major competitor in the domestic market, its impact has largely been reflected in airline fleet planning strategies.” .  .  .

Taiwan Setting a Precedent

The caveat: Chinese consumers have shown themselves to be very price-sensitive, and a high-speed rail fare cut could pose a serious risk to airlines, Credit Suisse warned. Taiwan offers an interesting precedent. In 2007, the year high-speed rail lines opened for business in Taiwan, air carriers pared back capacity on the critical route from Taiwan city to Kaohsiung, the territory’s second-largest city, by nearly 44 percent. In an effort to undercut train prices that were 15 to 32 percent lower than airplane tickets, airlines cut fares by an average of 36 percent. Not to be outdone, high-speed train operators responded by slashing their prices an additional 20 percent. At that point, the airlines cried mercy: By the end of 2008, every airline with the exception of Mandarin Airlines had stopped flying the route. And Mandarin eventually conceded defeat in 2012.

Lowest Rates in the World

For now, a major move to cut rail ticket prices doesn’t seem likely, the analysts said. For one thing, though bullet trains are significantly more expensive than China’s highly subsidized “slow trains,” the rates are still relatively affordable – an average worker’s monthly income buys 24 tickets on a fast train in China, higher than the 23-ticket global average. In fact, Chinese high-speed rail fares are the lowest in the world, with an average price that is 36 percent lower than the cost of an airline ticket.

I’ve argued that the Chinese HSR network was built a bit too soon, especially in some of the less developed areas.  Perhaps they should have focused on establishing rights of way.  But I see no reason to believe that the massive infrastructure investment in Chinese HSR won’t be a major success, especially compared to Europe, which is less densely populated than eastern China.  Chinese incomes are rising rapidly, they’ll grow into the system.

We used to read lots of stories about how the Chinese economic boom was only in the coastal areas, and that the interior has been left behind.  That wasn’t even true in the old days, although the interior was and is still poorer.  When I arrived by train at the central Chinese city of Wuhan in 1994 I felt like I was in Calcutta, swept along by a mob of people in a crowded, dirty and confusing train station.  Here’s Wuhan’s HSR station today, in the “backward” part of China:

Screen Shot 2013-07-27 at 8.57.00 AM

PS.  Earlier I did a story that discussed Chinese subway development, an even bigger success story.  One report I read suggested the crowding problem is due to a lack of cars, not a lack of line capacity.  And that can be traced to protectionism. China can’t build subway cars fast enough, and domestic content rules prevent imports.  It was in a comment section, so I don’t know if it’s true.



14 Responses to “Don’t believe what you read about China”

  1. Gravatar of Yichuan Wang Yichuan Wang
    28. July 2013 at 06:14

    And those trains will even tell you that it’s the Harmony line — in English!

  2. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    28. July 2013 at 06:48

    Sometimes things don’t quite work out as planned though;

  3. Gravatar of Justin Irving Justin Irving
    28. July 2013 at 06:52

    Wow! That is quite a train station, looks like it belongs in Switzerland. In 2007 I did a train trip through the big cities on the coast (Kunming -> Ulaanbaatar). None of the stations except maybe Hangzhou looked as modern as this. They are well on their way.

  4. Gravatar of Feyi Feyi
    28. July 2013 at 07:35

    Your experience mirrors mine.
    I was in Shanghai in February this year and I decided to take the train to Beijing and back.

    Most comfortable ride ever and it cost me the equivalent of £50 -ish for a 5hr ride.
    The Chinese will definitely grow into it.
    On my way back to Shanghai, the Beijing Railways station was packed full, I could hardly find a place to sit down while I waited for my train.

    And Shanghai Hongqiao station is a truly magnificent station to behold

    Not the biggest fan of China but its terribly unfair for us in the west to deny them the credit of what has truly been an outstanding achievement

    My blog post on China has some photos
    Scroll down

  5. Gravatar of ssumner ssumner
    28. July 2013 at 07:35

    Patrick, Great video, worth a post.

    Justin, That sounds like a great trip! These modern stations are all over China today.

  6. Gravatar of Geoff Geoff
    28. July 2013 at 07:40

    “I think fears over China are overdone.”

    “I think the confidence over China is overdone.”

    “I think the fears over China are understated.”

    “I think the confidence over China is understated.”

    Seriously, how can we coherently distinguish between these statements, and what do they even mean?

    It seems like a way to say something one believes about China, by stacking it up against some fuzzy and vague consensus, thereby getting one’s beliefs into the public discourse without actually taking a position of any sort.

  7. Gravatar of ssumner ssumner
    28. July 2013 at 07:49

    Feyi, Exactly my view (including “not the biggest fan of China”)

  8. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    28. July 2013 at 10:00

    Here’s another site for Detroit;

    Giving a little background to what the Mayor was bragging about. Not pretty pictures.

  9. Gravatar of ChargerCarl ChargerCarl
    28. July 2013 at 10:20

    Building up a national HSR system doesn’t seem any less sensible than what we did post WWII with our highway system. And on the plus side it won’t further ruin their cities with massive highways running through their downtowns like we stupidly did.

  10. Gravatar of Saturos Saturos
    28. July 2013 at 10:49

    Having never been to China, and despite your careful explanations, I get a schizophrenic impression from your posts – China is actually really rich! No, it’s extremely poor! No, people are rich enough! No, they’re still so poor compared with us! No, look how much like us their things are!

  11. Gravatar of johnleemk johnleemk
    28. July 2013 at 14:04


    I recently went to China for the first time so I appreciate the schizophrenia much better, having experienced it first hand. I first went to Xiamen, which is commonly ranked as one of the prettiest cities in China. Everything was amazingly clean and well-developed. It’s the only city in the world I’ve seen, other than Singapore, that looks like Singapore. Then I went on to Quanzhou, another big city in the same province. Quanzhou reminded me a lot of Johor Bahru, the Malaysian city right across the border from Singapore — clearly dirtier and less developed, but still very middle income. Then I went into the provincial interior, to visit the town my ancestors came from. That township was the poorest place I visited, but even there I saw immense variation in living standards. The downtown was the poorest and dirtiest I’d seen in China, but still much cleaner and more vibrant than comparable neighbourhoods I’d seen in, say, Kolkata. Barely a few miles away, people were toiling on farms and living in tiny wooden houses. They literally looked a world away from the amazing development in Xiamen, even though they were really just about 2 or 3 hours away.

    Parts of China are extraordinarily developed; Singapore is one of the richest places in the world, and I imagine there are urban areas in China, like Xiamen, in a similar economic situation. But much of China probably still looks like my ancestral village. China is big enough that even a relatively tiny middle-class dwarfs the populations of many rich countries. Scott’s seeming schizophrenia totally makes sense to me.

  12. Gravatar of edeast edeast
    28. July 2013 at 16:15


    Here in Canada, it seems we have a semiannual “Thank God, we got Jane Jacobs,” special on the cbc.

  13. Gravatar of ssumner ssumner
    29. July 2013 at 09:09

    Thanks Patrick.

    ChargerCarl, Yes, and I’d add that HSR makes far more sense for China than the US.

    Saturos. That’s because you don’t read them carefully enough. I always say the same thing:

    1. China’s really poor.
    2. China’s getting richer at a very fast rate.
    3. China’s currently about 20% or 25% as rich as the US.

    Thanks Johnleemk, Good comment, although I’d caution you that even China’s coastal cities are considerably poorer than Singapore. I hope to visit Xiamen someday.

  14. Gravatar of ssumner ssumner
    29. July 2013 at 09:11

    edeast, I like Canadian cities.

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