Financing Troubles Urban Rail Transit

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  It has been a common sense that the “mild stimulus” is an effective measure to keep the stable growth of economy in some regions with the current economic situation. The urban rail transit is an important part of this.
  The local governments have already sensed this and are busy throwing themselves into the construction of this system.
  The Henan Provincial Development and Reform Commission announced in middle May that its Recent Construction Plan for Urban Rail Transit in Zhengzhou had been approved by the State Council, meaning the construction of urban rail transit in Zhengzhou could be initiated.


  It is introduced that the urban rail transit in the uptown area of Zheng-zhou will consist of eight lines with the total length of 277.1 kilometers -with the density of 0.66 kilometers per square kilometer - and 35 stations.
  According to the plan, five subway lines will be completed and put into use by 2020, upgrading the volume of public transit to consume 60% of the motorized trips of the entire city with 25% of the public transit capacity carried by the urban rail transit.
  The construction of urban rail transit is also making large progress in other cities. This year, the construction of subway in Guangzhou soared again as the construction of 11 lines have been initiated. 72 shield tunneling machines are going to put into use in the entire year. According to the plan of Guangzhou municipal government, Guangzhou is going to build additional 260 kilometers of new subway lines by 2017, extending the total length of urban rail transit of Guangzhou to 500 kilometers.
  According to the schedules from different local governments, the firststage project of No. 1 subway line in Lanzhou was started on March 28; the construction of No. 1 subway in Urumqi was initiated at the end of April; the No. 2 Line of the subway system in Changchun was fully started in May; Chongqing is preparing for the construction of the new line between the college towns and Bishan this year; and the design of the first-stage project of Line 2 in Taiyuan has been reviewed and approved by the experts and government and is expected to be started before the end of this year.
  The statistical data from the Chinese Association of Urban Rail Transit showed that the total length of urban rail transit that has been put into use in 19 cities of China reached 2.476 kilometers. Among them, the subway lines take 2,073 kilometers or 75.5% of the total length. The light rail’s length totals 233 kilometers, 8.5% of the total length.   Ding Changfa, associate professor at Xiamen University, said that the micro stimulus package in some fields is an efficient way to keep the stable economic growth under the current economic condition. Presently, many industries in China are declining and the industry is haunted by seriously excessive production capacity. Therefore, it is unlikely to have massive investment into industrial sector. The increasing investment into the urban rail transit can not only satisfy the demand of citizens’ trips in densely populated cities, but also consume the excessive production capacity of steel, cement and other industries. That’s why the urban rail transit is worth a large amount of investment.
  Mao Baohua, head of the Department of Rail Transit at Beijing University of Transportation, said that many middle and big cities in China had less advanced public traffic facilities, leading to the jammed roads and lowering the efficiency of city operation. When the economy needs to be driven by the investment, it is a good way to throw money in this field to meet the demand of citizens and lower the risks as much as possible.
   The Rage of Subways in Middle Cities
  The State Council of China decided to cancel and delegate some of the administrative rights of examination and licensing in May. With this decision, the right of approving the urban rail transit was delegated to the provincial authority. That means whether the construction of a single subway line can be started only need to be approved by the Development and Reform Commission of each province. However, the general plan of urban rail transit of a city still needs to be licensed by the State Council.
  Presently, there are 36 cities in China having been given the license to build the urban rail transit, including four municipalities (Beijing, Shanghai, Tianjin and Chongqing), five specially listed cities (Shenzhen, Xiamen, Ningbo, Qingdao and Dalian), most of the capital cities (Haikou, Yinchuan, Lhasa and some minor cities excluded), as well Suzhou, Wuxi, Changzhou, Dongguan and others with strong economy and large population. All in all, they are the first- and second-tier cities of China.
  It is certain that there are more cities joining in the list. Since China is sparing no efforts in promoting the urbanization, a lot of peasant-turned urban citizens will come to cities and amplify the stress over the urban tariff system. It is known that Nantong, Luoyang, Yantai and Baotou are now actively preparing for the urban rail transit system.   For example, the plan of urban rail transit of Nantong passed the examination of the Ministry of Housing and Urban-Rural Construction and the Jiangsu Provincial Department of Housing and Urban-Rural Construction in May. This meant that the construction of subways in Nantong made a substantial and important step forward. “The Ministry of Housing and Urban-Rural Construction will give the National Development and Reform Commission a letter of advices for reference, which will be finally given to the State Council,” said an insider from the Nantong government. Though the specific date is unknown, the approval of Nantong’s subway system is nigh.
  A governmental official from Luoyang confirmed that the plan of subways in this city had been submitted to the National Development and Reform Commission and is waiting for the approval of the central government.
  Then, what cities are suitable to have the urban rail transit. Presently, the review is still made according to The State Council’s Notice of Enhancing the Construction and Management of Urban Rail Transit, which was issued in 2003. According to that rule, the cities that can host the urban rail transit system should have more than 3 million residents, the general budget income of more than 10 billion yuan, the annual GDP of over 100 billion yuan and the hourly passenger flow of 30 thousand for the designated routes during the rush hour.
  The economic development and social progress have enabled many cities to meet the standards of financial income and GDP which could onlly be met by a few cities before. Therefore, the Chinese government is reportedly modifying the standards, in which the requirements for financial income and GDP should be improved while the requirement for population is likely to remain unchanged.


  That means the population is also an important factor besides the economic power. If there are not enough people, it is a huge waste of spending massively on building the subways.
  Ding Changfa has the concerns that some medium-sized cities might“increase” the passenger flow manually to gain the approval of building the urban rail transit. According to him, there are many third- and fourth-tier cities whose charm cannot compete with bigger cities close to them. They cannot attract people from surrounding areas; instead, their residents are moving towards bigger cities. Therefore, the population increase in these cities is unpredictable and the need for traffic is not that large.    Do as Ability Allows
  Among all urban rail transit devices, the subway is the most costly. Concretely, the cost of building a kilometer of tramcar line is around 20 million yuan; for light rail, it is 200 million yuan and the cost for subway is 500 million yuan per kilometer. In some cities, due to the geological difference, the cost might be higher. For example, it costs 746 million yuan to build a kilometer of subway in Lanzhou. In Shenzhen, the cost is as high as 900 million yuan per kilometer. Such a high cost means the huge demand for capital in the construction of subways. For example, Guangzhou needs 155.15 billion yuan for its subway system during the “12th Five-Year Plan” (2011-2015).
  Then, where can the local governments find enough capital to support their huge projects? Big cities have more solutions. Take Guangzhou for example: the municipal government adopts the pattern of “sharing the burden among authorities of the city, towns and districts”. In addition, it borrowed the experiences of Hong Kong to develop the real estate along the subway lines, trying to get more income from these projects to serve the construction of the traffic system. The municipal government of Guangzhou also spared at least 8 bil- lion yuan in the budget each year for the urban rail transit construction as of 2011. The budget takes a small part of the city’s GDP and is thus thought to be affordable.
  However, the pattern of developing real estate projects along the subway lines is good, but hard to be copied into China. The biggest hurdle is the land policy, which has strict limitations over the area and usage of the appropriated land. For example, the appropriated land cannot be used for the development of for-profit projects. Therefore, it is useless for the subway development and operating companies to get the appropriated land. If they want to turn the land into profits, they need to bid for the land, which usually costs a lot of money as well.
  Therefore, some local governments are inclined to push the value of the land up with the subway and use the increased value of the land to offset the loss of the subway system. The cities choosing this pattern would prefer the remote area in the development of urban rail transit, because the land there is cheap and promising. But this left the old or downtown area, which has the real need for the urban rail transit, void of the efficient traffic system.

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