The project will cost RMB 22.0 billion and be completed in 2014.

This project will be part of China’s high-speed railway network, which has grown rapidly since 2008. In 2009, 5,557 km of railways, including 2,319 km of passenger dedicated lines, commenced operations. So far, China has 6,552 km of high-speed railways and ranks first in the world.

According to plans made by China’s Ministry of Railways, the country will build 36 passenger dedicated high-speed railways with a total length of 13,000 km by 2012. This network will be further expanded to 18,000 km by 2020, and will account for more than one-half of the world’s total length of high-speed railways.

By that time, the rail travel time from Wuhan, the most important transportation hub in central China, to major Chinese cities such as Beijing, Shanghai, Guangzhou and Chengdu, will be just four hours. The vast hinterlands of China will enjoy more convenient land transportation.

Investment in railway construction is the most important part of China’s RMB 4-trillion economic stimulus plan, which was carried out in response to the global financial crisis. In 2008, China’s investment in railway construction jumped 88.6% year on year to RMB 337.6 billion. It further increased by 77.9% to RMB 600.6 billion in 2009. According to the latest plan of the Ministry of Railways, total investment in this sector will reach RMB 2 trillion by the end of 2010.

Figure: China’s investment in railway construction from 2003 to 2009
 

Source: Ministry of Railways

Huge investment brings numerous opportunities. Industries that see immediate benefits include those that deal in infrastructure construction, raw materials such as cement, steel and other building materials, energy generation and the manufacture of locomotives, parts and components. Industries such as logistics and railway operation and maintenance will benefit in the long term.

Over 180 listed companies related to the rail sector will benefit from China's ambitious rail projects. Key players include China Railway Group, China Railway Construction Corp, Shanghai Tunnel Engineering, XCMG Construction Machinery, Sany Heavy Industry, China South Locomotive & Rolling Stock Corp, and China Northern Locomotive & Rolling Stock Industry Corp. In the first nine months of 2009, China Railway Group’s revenue grew 56.8% year on year to RMB 241.4 billion.

Though rail-related industries will profit, other industries will suffer. The aviation industry is such an example. High-speed railway and airlines are direct competitors in the field of short- and medium-distance travel. Due to the convenience and cost efficiency of high-speed railway, many travelers chose trains over planes.

Like Japan Airlines Corp, which was defeated by Japan’s railways, China’s major airlines have felt pressure from the emerging high-speed network. In March 2009, Spring Airlines canceled its flights from Shanghai to Zhengzhou, 17 months after the high-speed railway between the two cities commenced operations. In November that year, Sichuan Airlines stopped flying its route between Chongqing and Chengdu, a route it had flown for 20 years.

However, China is not Japan. Travel distances are much longer in China than in Japan. While routes shorter than 500 km may be better served by high-speed railway, 70% to 80% of travelers still choose to fly when traveling distances between 500 km and 1,000 km, and almost all of them choose to fly when traveling distances over 1,000 km.

Moreover, the current high-speed railways are only segments between two or three major cities. Since a comprehensive high-speed rail network throughout the nation has not been built yet, the effect on aviation is still minimal.

China’s high-speed railway will not only extend throughout China but also stretch to 17 countries in Russia, Central and Southeast Asia. The route in Southeast Asia, which starts from Kunming in Southwest China, will go through Vietnam, Cambodia, Thailand and Malaysia and end in Singapore. An important rail link in the China-ASEAN Free Trade Area, the rail line will promote trade within the region.

During the negotiations for building international high-speed railways, China promised to provide the necessary technology, equipment and completed trains. In return, the other countries will provide China natural resources such as natural gas and lithium.

China strengthened its ties with the U.S. and countries in South America when it took part in the bidding for a 1,250-km high-speed railway project that will connect San Francisco and San Diego. It also submitted a bid for Brazil’s high-speed railway project, which will be completed in time for the 2016 Olympic Games.

China is emerging as an important player in the world’s high-speed railway arena. The country has long been suffering from a shortage of rail transportation capacity for both passengers and cargo. The ongoing development of high-speed railway technology and infrastructure will surely bring more power to the world’s factory in the future.

The contributors are research analysts with China Knowledge Consulting. The firm provides corporate services, financial advisory, marketing strategy and recruitment to foreign businesses seeking business opportunities in China. Opinions expressed are their own.