China is extremely proud of its growing high-speed railway system, with state media often calling it a “speed booster” for the Chinese dream.
But recent financial disclosures showed that more than 60% of the country’s high-speed railway operators have each lost a minimum of around $100 million in 2018 and continued losing money into the first half of 2019.
The least profitable operator, based in the southwestern megacity of Chengdu, reported a $1.8 billion net loss in 2018. Operators based in the northern cities of Shenyang and Harbin each reported losing more than $1.5 billion last year.
The state-owned China State Railway Group owns all 18 high-speed railway operators in the country, as well as the regular railways and other transport companies.
The financial woes of China’s high-speed operators came to light unexpectedly due to disclosures made by the country’s most profitable line, which connects the capital city of Beijing to the financial hub of Shanghai, as part of its initial public offering.
In Kenya, critics have openly called the railway project a “white elephant,” which is a term used to describe something very expensive and not very useful.
But most analysts in China said high-speed travel was necessary in the country, even if the projects aren’t profitable right away.
“Railway projects are a long-term investment,” Wu Kan, an investment manager of the Soochow Securities, told Inkstone.
He said that even with a profitable track like the one connecting Beijing and Shanghai, it’s normal to expect the initial investment to be paid back in 15 years.
The Beijing-Shanghai line opened in June 2011 at a cost of $29 billion. It turned a profit five years later, in 2016. Since then, the line has averaged annual profit of $1.3 billion.
Analysts say by bringing financial accountability to the state-owned railway operator, the upcoming stock listing could boost transparency and much-needed reforms to other money-losing lines.
“China’s railway operators face a hefty historical burden,” Li Jin, chief researcher at the Beijing-based China Enterprise Research Institute.
Li said China’s railway operators have historically had a lot of debt and employed a large number of inefficient workers.
In the future, he said more state-owned railway lines are expected to go public. The end goal is to open up the rail-way operation to private companies and investors, with the state remained the main shareholder.