Is Chinese high-speed rail profitable?

The Profitability Conundrum of China’s High-Speed Rail Network

China’s high-speed rail (HSR) network is a marvel of engineering, connecting major cities at speeds reaching 350 kilometers per hour. However, beneath the gleaming exteriors and impressive ridership figures lies a complex financial reality that raises questions about the profitability of this ambitious infrastructure project.

Operating Revenue: A Mixed Picture

In 2023, China’s HSR network generated a sizeable operating revenue of 1.2 trillion yuan ($173 billion). This growth is largely driven by increasing passenger numbers as the network expands and becomes more accessible. However, the revenue stream also includes subsidies from the Chinese government, which has invested heavily in HSR development.

Net Profit: A Persistent Challenge

Despite the substantial operating revenue, China’s HSR network has consistently struggled to turn a profit. In 2023, the network reported a net profit of just 3.3 billion yuan ($475 million), a mere fraction of its revenue. This meager profit margin highlights the high operating costs associated with HSR, including energy consumption, track maintenance, and staffing.

Historical Context: Pandemic and Losses

Prior to the COVID-19 pandemic, China’s HSR network had experienced significant financial losses. In 2019, the network reported a net loss of 61.7 billion yuan ($8.9 billion). The pandemic’s impact on travel and tourism further exacerbated these losses, resulting in a net loss of 101.6 billion yuan ($14.6 billion) in 2020.

Financial Balancing Act

The delicate financial balance of China’s HSR network stems from a combination of factors. High construction and operating costs, coupled with government subsidies and low fares, make it challenging to achieve profitability. Additionally, competition from other modes of transportation, such as air travel and high-speed highways, adds to the financial pressure.

Future Outlook

The profitability of China’s HSR network remains uncertain. While increasing passenger numbers and government support may boost revenue, ongoing cost pressures and competition will continue to pose challenges. The government is exploring various measures to improve profitability, including fare adjustments, optimization of network utilization, and attracting private sector investment.

Conclusion

China’s high-speed rail network represents a remarkable technological achievement, but its profitability remains an ongoing concern. Despite substantial operating revenue, the network has consistently faced challenges in turning a profit due to high operating costs, low fares, and competition. The government’s efforts to address these financial issues will be crucial in determining the long-term sustainability and profitability of this vast infrastructure project.