In an unprecedented move, China will drastically increase fares for passengers on four major bullet train routes in the most far-reaching measures to deal with rising costs and high debt since the system's construction began nearly 20 years ago. Measures are being taken.
The increase in train ticket prices is part of an increase in the price of public services. Earlier this year, water and natural gas rates started rising in some cities.
Public services in China receive large subsidies from local governments. However, due to large local debts, these governments have less cash on hand to keep prices in check.
Higher prices could stem losses for some of the large state-owned companies that provide these services. And consumers paying more will help offset the price declines plaguing China's economy as growth slows.
China has already significantly increased electricity prices for many factories starting in 2021, while residential customers continue to pay low, subsidized electricity prices.
“Large factories should be paying market prices now,” said David Fishman, senior manager in Shanghai for Lantau Group, a Singapore-based power consulting firm.
Raising rail fares has become a thorny political issue in China. The Shinkansen is a symbol of a nation's ability to build infrastructure, often before consumer demand emerges. However, this infrastructure development is being paid for with huge amounts of borrowing, amounting to $870 billion for China National Railway Group, the state-owned company that operates the railway network, alone.
The Treasury has ordered more than a dozen of China's most indebted provinces to cut infrastructure spending this year in exchange for debt relief. Chinese leaders are shifting the country's growth strategy from infrastructure and real estate investment to high-tech manufacturing and exports. But this has sparked a backlash in the United States and Europe, which fear further exports from China could cause job losses and undermine their own industrial base.
Since 2008, China has opened 48,000 miles of bullet train lines. Lines connect all major cities with hundreds of smaller cities and towns. To put its size in perspective, this system is long enough to span more than 10 times the length of the continental United States, from New York to Los Angeles. The first line opened just before the Beijing Summer Olympics.
China's bullet trains typically travel at either 186 mph or 317 mph, depending on the route. Because the tracks are straight, trains can travel long distances without slowing down.
However, the debt incurred to build that network is not limited to China National Railway Group. Many of the lines are owned by joint ventures with state and city governments that have helped pay for construction, making it increasingly difficult to receive transportation subsidies.
Some of the older lines are starting to require more maintenance. They were hastily built during the global financial crisis to employ hundreds of thousands of workers who lost their jobs when export factories were temporarily closed.
The rail system explained this month's fare increase in a statement to the state news agency Xinhua, saying, “Operational costs such as route maintenance, rolling stock purchases, equipment upgrades, and labor hiring have changed significantly.”
The fare increase caused considerable commentary on Chinese social media. Much of that has been negative, as salaries have stagnated and real estate prices have fallen over the past few years.
One person complained, “Everything has gone up except wages.''
Fares will increase during peak travel times along routes from Hangzhou to Shanghai, Changsha to Ningbo, and Wuhan to Guangzhou. Many of the cities are fairly wealthy communities near the Yangtze River and its tributaries in central China. But the price increases will also affect travelers in smaller, less prosperous towns in between.
During peak periods, fares will increase by nearly 20% for first and second class tickets during peak periods, except for routes between Hangzhou and Changsha, but the increase will be small. Fares can jump up to 39% for luxury VIP business class seats, which feature lie-flat seats similar to business class on intercontinental flights.
The rail system said in a statement to Xinhua News Agency that the peak fare increase will allow for deep discounts on some off-peak tickets and low-speed trains with many stops.
The steep rise in fares may have attracted public attention. The rail system raised second-class fares between Beijing and Shanghai, the country's busiest route, by 8% at the end of 2020, and a further 10% a year later.
China's bullet trains remain cheap compared to Western countries. “At the end of the day, China's railways are still cheaper than European, Japanese and American railways,” said David Feng, an international railway consultant in Beijing.
Price increases will soon mean that the maximum fare for a second-class high-speed train ticket from Wuhan to Guangzhou, a journey of about 600 miles and taking less than four hours, will soon be $78. A ticket for first class, which has two seats on each side of the aisle but with more legroom, like economy class on American trains, costs $125, and a fully lie-flat business class seat costs $273.
When the system opened, many in the West predicted that its cavernous stations might never be filled. Currently, the lines are barely used in some smaller cities, especially those with stagnant or worse economic growth. However, in China's largest cities like Shanghai, trains are popular.
Train stations in these cities are crowded, especially during holidays like the recent five-day May Day holiday. Shanghai's Hongqiao train station, which has a departure hall the length of three soccer fields, was still packed with mobs two days after the holidays ended.
In Beijing and Shanghai, 17- or 18-car trains run on platforms built for 16 cars. Trains run frequently, with more than 80 trains a day between Beijing and Shanghai.
But hundreds of small cities and towns are building large stations, even if they only serve one train a day. China National Railways invested an additional $108 billion in further expansion last year, much of it going to connect remote areas. However, operating income was only $470 million, leaving little money to pay down debt.
New towns and cities have grown along high-speed rail lines. Each station is surrounded by blocks of high-rise buildings, and many people live nearby and use the stations. Many Chinese people use this route to travel weekly or even daily from cheap cities where apartments rent for less than $100 a month to jobs in more expensive big cities.
Li Yu Contributed to research.