Will the Beijing-Guangzhou High-speed Railway face insolvency in the future?

Written By: on INSOLVENCY MANAGEMENT, Uncategorized

The Beijing-Guangzhou high-speed railway opened on 26 December 2012. With the two cities now linked up, travellers from one city can reach the other city in approximately 7 hours.

The cost of a train ticket from Beijing West to Guangzhou South ranges from RMB 712 to RMB 2727. Most people think the cost is almost as high as the cost of an air ticket. According to published statistics, the total cost of constructing the Beijing-Guangzhou high-speed railway was almost RMB 400 billion. Based on the current passenger numbers and the ticket price, it would be hard to recover these costs.

Zhao Jian, a professor from the Economic and Management College of Beijing Jiaotong University, believed that “heavy losses will be incurred from the operation of the Beijing-Guangzhou high-speed railway”. He added that all the high-speed railways that have been built so far are suffering losses, such as the Beijing-Tianjin high-speed railway which produces approximately RMB 700 million losses each year and the Wuhan-Guangzhou high-speed railway which announced they had to reduce the speed and ticket prices for various reasons.

None of the railways operating in China make profits at present. Take the Beijing-Shanghai high-speed railway, for example, where RMB 221 billion was spent on building the 1318-kilometre railway. Of this amount, RMB 110 billion was obtained from financing, and interests of approximately RMB 7 billion are incurred each year. Furthermore, depreciation expenses cost RMB 9 billion a year and another RMB 3 billion a year is spent on the costs of operation and maintenance. It is expected that the Beijing-Shanghai high-speed railway would generate RMB 20 billion to maintain its operation, however the Beijing-Shanghai high-speed railway only made RMB 10 billion income in the first year.

The main reason why the high-speed railways make losses is due to the high price of tickets. A majority of the middle and low income earners could not afford such expensive ticket prices, which have led to low passenger numbers. Globally, high-speed railways seem to be “cursed” by losses, for example, the railway in France, and the Shinkansen in Japan which made losses for 20 years until the government could not undertake the responsibility any longer, and sold it to a private company.

Source: http://www.chinainsol.org/show.aspx?id=6041&cid=14