Business and management
Chinese mass transit
On the right track
Jun 22nd 2011, 10:45 by T.E. | HONG KONG
ALTHOUGH it may not be front-of-mind-news for five-sixths of the world’s population, 2011 is the year of the XXVI Universiade Games, with the southern Chinese city of Shenzhen having the summer portion (and Ezurum in Turkey the winter). For China there is nothing like hosting a international event to serve as a catalyst for yet another mass transport project.
So, on June 16th, with the games less than a month away, Shenzhen cut the ribbon on a much-needed $HK7 billion ($900m) extension of its metro system. The new stretch spans 16 kilometres and 10 stations, and knits together the other main Shenzhen lines. But its real importance has less to do with what was created than how.
The builder is MTR Corporation of Hong Kong, the part-privatised company that runs the territory’s remarkably efficient and clean metro system (pictured). That MTR also owns a huge property portfolio is almost certainly a core issue in its involvement with Shenzhen.
Back in 2004, as part of a strategic effort to expand beyond Hong Kong, MTR commissioned a report from a local university on transit systems in many of the world’s largest cities, which observed that “railway investment is not financial viable on its own.” Not long after MTR’s founding in 1975, the parsimonious colonial administration which then ran the territory came to a similar conclusion, and decided to finance the construction of a subway system through simultaneous grants of adjacent property. It was, in essence, a trade of movement below for land above, a model that has been used successfully in Japan and, a century ago, in America as well.
The results have not been entirely successful. Some of the MTR projects reflect the worst of bleak government architecture but over time its portfolio has become a bit smarter; and these property holdings, along with the lease of advertising space, now account for more than 60% of MTR’s revenues and presumably all of its very healthy profits, as well as providing the financial strength to support its spotless metro service.
China has taken an alternative road. Having for decades largely neglected the need for efficient light-rail systems as its cities grew, it is now in the midst of metro-mania. Last year the number of subway carriages in service across the country grew by 50%, with more than 30 cities in the process of building new metro lines. In almost every case, the financial model has been to provide direct government subsidies.
Fares are low, from 2 yuan ($0.31) in Beijing to as much as 14 yuan for extended trips in Guangzhou. Losses are not publicised but there have been hints. The Beijing system reportedly received 14 billion yuan in subsidies last year, not including contributions towards its construction expenses. Part of the Shanghai system comes under a public company, Shentong, but it too does not disclose the cost of its construction debt; it may in practice be largely forgiven. Shenzhen’s system, according to the South China Morning Post, faces a deficit of 22 billion yuan over five years. None of the Chinese metro systems is considered remotely profitable.
MTR has said it will operate the Shenzhen line under a concession agreement, implying that its operating costs will be covered by government subsidy if not fares. The China Daily says the initial intention was that there would have been a Hong Kong-style property transfer, but that this was dropped. However, the South China Morning Post says it is very much on the table. MTR itself is a bit vague on the matter: it says there are ongoing discussions and both sides have always been aware of the tie between operating costs and property development.
There is, apparently, an eight-hectare plot, alongside a depot, reserved for MTR to develop. But transfers of property are so sensitive in China it may not be possible to discuss such a thing publicly. Of course if the terms of the property transfer are kept hidden, Shenzhen’s citizens will not know whether they are getting a fair deal, or indeed whether any profits from the property development are being applied in the way the deal specifies.
How Shenzhen ends up financing its metro extension—direct subsidy or property transfer—may also give a clue as to the broader direction of China’s political development. The city is famous for its experiments in market-oriented government; it would be a bad sign if, even there, China can no longer tolerate such experimentation.