High-speed rail investment and profitability need to be rigorously demonstrated


　　 Zhang Hanbin

　　When it comes to the profitability of railway investment, one cannot fail to mention a successful case-the Beijing-Shanghai high-speed rail.

The Beijing-Shanghai high-speed rail has been in operation for ten years. Since 2014, the Beijing-Shanghai high-speed rail has continuously achieved profitability.

From 2014 to 2019, the average annual growth rate of net profit was as high as 39.4%. In 2019, the net profit reached 11.937 billion yuan, and the return on net assets increased to 8%.

Under the severe impact of the new crown pneumonia epidemic in 2020 on the global transportation industry, the Beijing-Shanghai high-speed railway still maintains profitability and achieved a profit of 4.586 billion yuan.

　　Due to high construction costs, heavy interest burdens, and high maintenance expenses, high-speed railways must have a large passenger volume if they are to be profitable.

The 7 provinces and cities along the Beijing-Shanghai high-speed rail are economically developed and densely populated. The population of the region that it passes through accounts for 26.7% of the country. 11 of the 24 cities that have a population of 1 million or more in the middle of the city have a solid market foundation.

At the same time, the Beijing-Shanghai high-speed railway is designed to have a speed of 380 kilometers per hour, with a minimum interval of 4 minutes, and a total of 1.35 billion passengers have been transported for ten years of operation.

In 2019, when the passenger volume was the highest, the annual passenger volume of Beijing-Shanghai high-speed rail reached 210 million. With 3.7% of my country's high-speed rail operating mileage, 9.3% of my country's high-speed rail and 6% of national railways were completed. These factors have strongly promoted The Beijing-Shanghai high-speed rail quickly realized profitability.

　　The high-speed rail stations along the Beijing-Shanghai high-speed rail line are connected to cities and airports through subways and urban rails. The fast air and land transportation system not only brings the same-city effect of the urban agglomerations along the line, but also expands the ability of the urban agglomerations to effectively connect with the outside world.

Over the past ten years, cities along the Beijing-Shanghai high-speed rail have achieved rapid economic development, and the pace of urbanization is also accelerating.

For example, Xuzhou East Railway Station has grown from barren hills in the suburbs ten years ago to tall buildings today, reflecting the impact of high-speed railways on the development of cities along the line from one side.

　　As the saying goes: If you want to be rich, you must first build roads.

This remark reflects the irreplaceable effect of transportation in facilitating the distribution of essential factors, expanding the market coverage radius, and enhancing the vitality of the regional economy.

Railway is one of the main land transportation methods since the industrial society. It has the advantages of large transportation volume, low cost, energy saving and environmental protection.

However, the cost of railway construction is high, the investment payback period is long, and private investment is difficult to support. Therefore, the early railway construction in Britain and the United States innovatively adopted the social financing model of the shareholding system, which brought a revolution in operation and management.

　　Of course, the marginal revenue of railways changes with changes in the density of the road network, the capacity of the regional market, and the spatial distribution of the population. It also changes with the adjustment of the industrial structure and the industrial stage.

Taking the road network density as an example, it is generally believed that before reaching a certain scale of road network density, the marginal revenue of the railway will not diminish, and as long as the marginal revenue is greater than the marginal cost, the investment can be expected.

However, the optimal road network density will change with the evolution of economic aggregates, population distribution, and industrial upgrading.

　　Today, the total mileage of my country's railways is about 150,000 kilometers, including nearly 40,000 kilometers of high-speed railways.

On 9.6 million square kilometers of land, the distribution of the railway network is very different, and the density of the local road network is approaching or even surpassing the optimal scale. At the same time, other local road networks are too sparse, like the vast Qinghai-Tibet Plateau. Although the construction cost of "Tian Road" is extremely high, its social benefits, regional development functions, and the overall effect of the road network can compensate for the economic benefits. Therefore, it can be constructed and operated by means of national overall fiscal subsidies.

　　Through the development practice of Beijing-Shanghai high-speed railway, it can be seen that it is feasible and worthwhile to try a market-oriented operation model for railway construction and operation, and it is also due to the decisive role of the market in resource allocation.

Therefore, the market-oriented operation pattern of the National Railway Group does not exclude the necessary supplementary mode of partial or specific line subsidies or overall planning. The key is to maintain and stimulate the enthusiasm, initiative and creativity of construction and operation entities to participate in and develop the market.

　　One of the innovations of the Beijing-Shanghai high-speed rail is that the local governments along the route use land to invest in shares. Local governments such as Shanghai, Jiangsu, Nanjing, Shandong, Tianjin, and Beijing are among the top ten shareholders through investment companies, which partially relieves the state. Debt servicing pressure caused by large investments by railway groups.

At present, local governments are highly enthusiastic about the construction of high-speed railways, and attracting investment from local governments is also a viable model for the construction of high-speed railways in the future.

At the same time, the listing of high-speed railway assets can realize asset transfer and optimization.

Among them, the profitability of high-speed railways after receiving regional subsidies is the basic condition for the return on investment and long-term sustainable operation of listing. Therefore, the construction of high-speed railways needs to go through strict investment return demonstration.

　　(The author is a researcher at Yinhe Securities)

Zhang Hanbin

Zhang Hanbin