Wednesday, April 14, 2010

High-Speed Overload

China is already showing signs of overcapacity -- as evidenced by the number of investigations countries are making on allegations of the Middle Kingdom dumping products around the world for cheap due to government subsidies.

And now overcapacity is rearing its ugly head back home.

The country is currently building a number of high-speed railway networks, not only as a kind of economic stimulus to create jobs, but also to create more domestic consumption.

However, many people who ride the rails are complaining because of the high ticket prices that are many times what the slower trains cost, despite cutting times down in some cases significantly.

Nevertheless, when it came to the Beijing-Fuzhou route, with Fuzhou being in Fujian Province, the route was not economically feasible and shut down as of yesterday -- after only two months of operations.

The trip, which also made stops at Hangzhou, Taizhou, Wenzhou and Tianjin, took 16 hours, which was only three hours less than the slower train.

Also the price for the most expensive ticket was 1,185RMB ($173) for a lower berth in a soft seat carriage and 1,055RMB ($154) for an upper berth, compared with about 600RMB ($87) for the same seat on the slower train.

It turns out the high-speed train couldn't compete with the existing air route, which is 1,610RMB ($235) and the flight definitely takes less than 16 hours. That's because airlines realized they would have to slash prices in order to compete with the train. But with no more competition, does this mean higher air fares again?

Some people wondered why the train was shut down permanently and didn't try to compete more effectively with airline tickets in terms of prices. Others felt closing the newly-built rail line was a complete waste of resources.

What is outrageous is that there doesn't seem to have been any feasibility study conducted to see if such a line was needed, and instead the government, probably provincial, went ahead and built it just to boost GDP growth.

Imagine all that steel, technology, and not to mention migrant workers' physical labour to build the rail line, only to have it shut down in two months?

This is a sign of overcapacity in the most extreme sense.

But it may not be the last.

1 comment:

gg said...

must level off. a curve usually shows this pattern. but when?