High assets and high liabilities come to the subway company. On May 5, #Beijing Metro's total assets exceeded 23 billion yuan# and #Beijing Metro pays 8000.149 billion interest a year# at the same time on Weibo's hot search, and the issue of subway profitability attracted attention. However, it is not only Beijing Metro that has such a situation, among which the asset-liability ratio of Lanzhou Rail Transit in 2022 has reached 82.63%. The Beijing Business Daily reporter also noted that subways in various places are more or less dependent on government subsidies, which reflects the difficulty of breaking even in the current subway.

The subway has the attribute of urban public service, which is a necessary support for "low-carbon" travel and solving big city diseases. However, the large investment in subway construction and the long return period are also practical problems. The discussion of the profitability of the subway is to find a replicable model to shorten the return on investment period of the subway, reduce the burden of government investment, and make the subway better serve the citizens.

In this regard, some industry insiders suggest that mainland cities can learn from the successful experience of MTR to develop TOD models and reduce their dependence on government subsidies. In addition, subway construction produces excellent and scarce assets, although the current loss, but from the long-term benefit, can not be simply based on narrow benefits, whether it is profitable to consider its value.

High debt is common

The development of the subway is inseparable from the financial situation of the subway company. Data show that Beijing Infrastructure Investment Co., Ltd. (hereinafter referred to as "Beijing Investment"), the parent company of Beijing Metro, currently has the largest asset scale, exceeding 2022 billion yuan in 8000, while liabilities are as high as 5338.65 billion yuan, with an asset-liability ratio of 2022%. At the same time, due to high debt, Beijing Metro pays a lot of interest every year. In 149, the interest expense of Beijing Investment Corporation will be 38.<> billion yuan.

According to media reports, a total of 44 cities across the country have opened rail transit that operates in subway mode. In addition to the undisclosed financial reports of some companies, there are currently 2022 rail transit companies that can query the 30 financial reports. It is worth noting that among these 30 companies, it is not uncommon for them to have high gearing ratios. Among them, in 2022, Shenzhen Metro will rank second with total assets of 6616.3500 billion yuan, and total liabilities of 80 billion yuan will also be second. In terms of asset-liability ratio, the highest is Lanzhou Rail Transit, the only enterprise with more than 2021%. The asset-liability ratio of Lanzhou Rail Transit in 80 was 79.2022% and 82.63% in 1, an increase of 84.<> percentage points in comparison.

Under the high debt, the interest expense of the subway companies is not low. Taking 2022 as an example, in addition to Beijing Investment, the interest expense of Chengdu Rail Transit will be 68.71 billion yuan, the interest expense paid by Hangzhou Metro will be 44.42 billion yuan, and the interest expense of Chongqing Rail Transit will be 42.9 billion yuan.

An Guangyong, credit management committee of the All-Union M&A Association, told the Beijing Business Daily reporter that the relatively high asset-liability ratio means that a considerable part of the assets are supported by debt financing, and at the same time, the high interest means that the subway company needs to pay a large amount of interest as the cost of the liability, "indicating that the subway company is facing greater financial pressure in the process of operation, and also reflects that its operating situation has not yet reached the ideal state."

"High debt pressures may affect the company's cash flow and solvency, increase financial risk and operational uncertainty, especially if profitability is insufficient to cover high interest expense, which may lead to further exacerbation of operating difficulties and financial problems." An Guangyong further prompted.

Where is the difficulty of making a profit

The subway is one of the indispensable means of transportation in today's social life. It is not only a part of public services, but also a necessary support for "low-carbon" travel and solving big city diseases, and has the attribute of public welfare. At the same time, large investment in subway construction and long return period are also practical problems.

"Metro construction is a long-term investment with a relatively long payback period, and it takes a long time to accumulate to achieve profitability. When we discuss the profitability of the subway, we do not require that the subway operation must be profitable in a short period of time, but hope to find a replicable model to shorten the investment and return cycle of the subway, reduce the burden of government investment, and enable the subway to better serve the citizens. In An's view, the difficulty of achieving profitability for subway companies is related to a variety of factors, including high operating costs, fare restrictions and long capital return periods.

"On the one hand, subway construction and operation require huge capital investment, including line construction, vehicle purchase, personnel salary, maintenance, etc., these costs are a long-term burden for subway companies. On the other hand, in order to ensure the inclusiveness and convenience of public transportation, subway fares are usually relatively low, resulting in relatively limited income. An Guangyong pointed out.

It is worth noting that among them, the lack of passenger flow is also the focus of attention. According to the "Opinions of the General Office of the State Council on Further Strengthening the Planning and Construction Management of Urban Rail Transit", the initial passenger transport intensity of the proposed subway shall not be less than 0,7 person-times per kilometer per day, and the long-term passenger flow scale will reach more than 3,<> person-times per one-way peak hour.

The Beijing Business Daily reporter learned that at present, the subway in many cities cannot meet this requirement. According to the April 2023 Urban Rail Transit Operation Data Express, the average passenger intensity in April was 4.4 million person-days per kilometer. Among the metro cities in the country, only 0 cities have a passenger flow intensity of more than 552.17.

According to Zheng Lei, chief economist of Samoyed Cloud Technology Group, high debt ratio and long payback cycle are the characteristics of subway investment and operation in all countries and regions, not only in China, if only relying on subway fare income to break even takes a very long time. "At present, domestic subway construction projects need to look at indicators such as urban population and area to estimate the cost and income after formal operation, but if other additional economic resources are not provided to subway construction and operation enterprises, it is difficult to achieve breakeven even in large cities and places with a large number of subway riders." Zheng Lei told a reporter from Beijing Business Daily.

The solution to the TOD model

Under the superposition of multiple factors, is the subway company really unable to make a profit? The answer is no, there are already some cases at home and abroad.

The Hong Kong Metro, for example, has an annual ticketing revenue to operating cost ratio of more than 170%, while the MTR's profit has been as high as €20 billion for many years. In 2020, under the influence of the new crown epidemic, the MTR lost money for the first time in its history, but in 2021 it turned a profit. At the same time, the MTR was once called the "most profitable subway".

An Kwong Yong believes that mainland cities can learn from the successful experience of the MTR and "attract more passengers to use the MTR by providing high-quality services, comfortable rides and convenient transfer connections, and increase passenger traffic and ticketing revenue." At the same time, optimize operating costs, improve efficiency, reasonably control personnel salaries, maintenance costs and other expenses, and actively seek government support: cooperation and support between subway companies and the government."

It is worth noting that An Guangyong pointed out that in addition to ticket revenue, subway companies can also obtain additional income through leasing commercial space, advertising, property development, etc. This is the most laudable part of the MTR experience.

Another example is the Tokyo Metro in Japan. According to publicly available data, Tokyo Metro earns about 8 million yen per day. It is worth noting that the Tokyo Metro is not only a commuter line and a commuting line, but also a commercial line and tourist line.

According to statistics, MTR's profitability has benefited from more than 500 million daily ridership and the full development of the TOD model.

The TOD model is different from the investment and financing models such as PPP, BOT, BT and so on, it is a transit-oriented urban development model, which can carry out high-density property development at rail stations and feed back subway operations through real estate-related income.

At present, many places in China are also exploring the TOD development model. According to reports, in 2022, Shenzhen Metro received 160 billion yuan in revenue in this regard, the highest amount among subway companies. Last year, the total income of real estate development and primary land development of Beijing Investment Corporation was close to 63.62 billion yuan; Chengdu Rail Transit Group's comprehensive development income of 54.<> billion yuan; The primary development income of Wuhan Metro resources is nearly <>.<> billion yuan. Rail transit in Hangzhou, Qingdao, Ningbo, Nanning, Guangzhou and other places also has good income in real estate-related aspects.

Excellent assets that add value

The development of the TOD model is hot, but back to the present, it is still necessary to see that under the superposition of factors such as insufficient passenger flow intensity and low fares, it is difficult for subway companies to maintain normal operation of the subway itself, and most of the subway needs to rely on government subsidies. This can be seen in the "other earnings" (government subsidies related to daily activities) entries in the financial reports of various subway companies.

In 2022, Beijing Investment Corporation still received the most subsidies, reaching 262.86 billion yuan, an increase of 2021.48 billion yuan over 94. Hangzhou Metro's subsidies also increased sharply last year, reaching 69.50 billion yuan, the second highest subsidy for the company. In addition, rail transit companies in Chongqing, Zhengzhou, Suzhou, Qingdao, Chengdu, Ningbo, Nanjing and other places also received government subsidies of more than <> billion yuan last year.

Conversely, if the profitability of the subway itself is strengthened, it means that the pressure on the government is reduced. In this regard, Zheng Lei pointed out that in order to balance the public welfare of the subway as an urban infrastructure and public service, it is necessary to give the subway construction and operation unit resources to obtain other income, such as land along the line, advertising of stations, shop operation rights, etc.

However, Xie Xiaowen, an expert member of the New Technology Promotion Branch of the China Transport Association, also pointed out that a large part of the existence of subway companies is to provide public services, not simply to make profits. "The construction cost of the subway is large and the return on investment income is slow, but as an urban public transport infrastructure, it has important social service functions, even to the extent that it is indispensable."

"From the perspective of big benefits, although the current loss, in the long run, the assets generated by subway construction are excellent and scarce assets, which should not only not be devalued, but also excellent assets with value-added." Therefore, it cannot be considered purely by the narrow sense of efficiency and whether it is profitable. Xie Xiaowen said.

Beijing Business Daily reporter Fang Binnan and Ran Lili