Lining up for more
Tram plan, plus Wuhan spending binge, show appetite for infrastructure
23 Aug 2013
Week in China
Just like the car, the tram was a German invention, taking to the streets of Berlin in 1861. Admittedly, back then it was pulled by a horse, so credit for the more familiar electric version must go to Russia’s Fiyodor Pirotsky, who built an experimental line in 1880. But it was the Germans who were first to commercialise the technology, when Werner von Siemens launched the first passenger service the following year in a Berlin suburb.
Trams quickly became popular elsewhere, including China. In 1904 Hong Kong got one and by 1925 Shanghai had 328 tramcars servicing 14 routes. However, trams fell out of favour with Maoist city planners due to their low speed and loud noise. During the 1960s and 1970s they were retired from almost every Chinese city (Hong Kong – then run by the British – was a rare exception).
Bureaucrats in the city look to be sticking with a more tried-and-tested formula: 'build it very big and they
But now the tram is making a comeback and on a fairly massive scale, sporting faster, sleeker designs. According to the 21CN Business Herald, 36 cities have got approval to build tram networks at a cumulative cost of Rmb4 trillion ($653 billion) by 2020.
Earlier this month the first of the new wave made their debut in Shenyang. Nicknamed by locals ‘the dolphin’ (because of their shape), trams in the northeastern city are set to travel on 70 kilometres of line and call at 65 stations, reports Global Rail News. The system is operated by a French consortium, which holds 49% of the venture, with the Shenyang government holding the rest.
The southern city of Zhuhai has also approved the budget for a tram line and authorities in Gansu in the northwest have given the green light to build a tram system in the city of Lanzhou (estimated cost: Rmb18.9 billion). According to the Economic Observer, both Shanghai and Tianjin are also at an advanced stage of planning processes to lay tram networks too.
The newspaper says as much as 5,000km of tramways could be built in Chinese cities, with the tram revival being heavily promoted by the country’s economic planner, the NDRC. It quotes a director from that body as saying trams are seen as more environmentally-friendly than buses but also capable of confronting the worsening traffic congestion afflicting many cities. Like subway construction (also undergoing a building binge, see WiC82) they will help to connect outlying suburbs with the city centre and key business districts. But each kilometre of tramway can cost as little as half as much as the equivalent of
Guo Xiaobei, director of the NDRC’s Institute of Comprehensive Transportation, says trams will be essential to China’s urban future, given that 200 million more people are forecast to flock to the cities. Guo reckons that more than 20 cities will have a population in excess of 10 million by 2020, vastly increasing the demand for transport.
Another cheerleader is Bao Xuding, chairman of the China Association of Urban Rail Transit. He told the Economic Observer that tram lines take less than two years to build but can carry 15,000 passengers per hour in rush hour (up to five times the capacity
While the logic seems sound, WiC readers might be wondering how all this new infrastructure is going to be funded. The 21CN Business Herald says that this is already a “chronic problem” for city governments.
In Lanzhou, for example, about a quarter of the cost is coming from city coffers, while the tram operator will finance the rest from bank loans. But 21CN warns that, ultimately, this method piles more debt on city balance sheets. As has become increasingly evident, many local governments are already straining under contingent liabilities incurred via financing vehicles used for an earlier swathe of infrastructure building after the 2008 financial crisis.
The tram masterplan may also jar with recent statements from the Beijing leadership about a new approach to economic management. Under the aegis of ‘Likonomics’ (a term used to describe Premier Li Keqiang’s new policies targeting wasteful spending, see WiC204) emphasis is supposed to switch to boosting the private sector and encouraging consumer spending, while discouraging some of the older methods for steering growth, like local governments spending vast (and usually largely borrowed) sums on roads, railways and bridges.
But in a country as big as China, discerning the prevailing policy wind isn’t as simple as looking at the headlines. Activity on the ground has to count too. And indeed, no one seems to have told city officials in Wuhan about Likonomics.
As the 21CN Business Herald reported late last week, bureaucrats in the city look to be sticking with a more tried-and-tested formula – the one mostly favoured by Chinese city planners in recent decades. While it has no official name, WiC terms it ‘build it very big and they will come’.
In fact, to create what local officials describe as a “national central city”, Wuhan announced it will be spending Rmb422 billion – yes, $68.9 billion – on infrastructure projects over the next three years.
Officials say this is designed to play catch-up after decades of relative under-spending in the city – for example, they note that Wuhan’s urban area is second only to Shanghai’s, but that it has invested only a fraction of what Shanghai has spent
The list of plans is dizzying, and goes far beyond building a few tram lines. Among the projects scheduled: six subway lines, a bridge over the Yangtze, a new cargo airport, an expansion of the existing passenger airport and a fourth railway terminus.
Intriguingly, Wuhan’s officials might have gone intentionally off-message, to cock-a-snook at Premier Li’s alternative vision. For example, there were already rumblings in the press that 6,000 construction projects were underway in the city. Rather than dampen the speculation Wuhan officialdom punchily elected to confirm that the true figure was actually over 10,000.
What’s behind this attitude? Perhaps an inferiority complex of sorts. Prior to Deng Xiaoping’s ushering in of the reform era, Wuhan’s economy lagged only Beijing, Tianjin and Shanghai. But since then it has been eclipsed by Guangzhou and Chongqing, which both rank as first- tier cities. What officials term “the Wuhan renaissance” is seen by many as a battle to emerge as the top ‘second-tier’ city. Last month Mayor Tang Liangzhi even compared the situation to China’s Warring States period, saying Wuhan must not be surpassed by Chengdu, Qingdao, Hangzhou, Nanjing, Dalian or Shenyang.
That, Tang explained, is why infrastructure spending this year would total Rmb130 billion, versus a mere Rmb30 billion in 2008. Another local bureaucrat called it “a race against time” to establish Wuhan’s primacy.
(Wuhan’s sense of urgency certainly puts the UK’s HS2 rail project in perspective. It is envisioned – if HS2 even happens at all – that completion could take place circa 2032. Not a timetable, we suspect, that would greatly impress Mayor Tang.)
21CN nevertheless calls the plans “controversial”, not only for the debt that will be run up but also in boosting the potential for graft. There is also the environmental impact. As WiC pointed out in issue 202 digging up and developing Wuhan at such a rapid clip has had a major downside: the reclaiming of land from the city’s lakes has impinged on Wuhan’s natural drainage. Accordingly, it’s now known as the ‘flood capital’ of China.
Thus while its building binge may boost Wuhan’s GDP and help it outgrow its rivals, the longer-term price may be a worsening of its already fragile local environment.
That said, the figures from Wuhan – as well as the forecast for tram investment nationwide – hint that infrastructure spending in China may not be declining as fast as some economists thought…
Week in China
Week in China helps keep you up to date with the key business news from the world's fastest-growing large economy. It is produced on an exclusive and complimentary subscription basis for HSBC's corporate and institutional clients.