Rise, rise, rise! What is the root cause behind the wave of utility price increases? China's high-speed rail vs. Japan's Shinkansen

Supra-political and economic

2024-05-26 11:18Published in Beijing, senior financial media person

High-speed rail has risen, water prices have risen, gas prices have risen, electricity prices have risen, and public utilities have risen, and the people have complained bitterly.

Is the era of all-round price increases coming? As ordinary people, how to deal with turbulent times?

Looking at a few sets of data first, the National Bureau of Statistics said that in the first quarter, the profit of electricity, heat, gas and water production and supply industries was 192.1 billion, a year-on-year increase of 40%.

China Railway Group decided to adjust the fares of EMU trains with a speed of 300 kilometers per hour and above such as the Wuhan-Guangzhou section of the Beijing-Guangzhou high-speed railway from June 15, an increase of about 20%.

At the Guangzhou water price hearing, the price of water in Guangzhou increased from 1 yuan 9 cents 8 yuan to 2 yuan 6.

Some Chongqing residents reported that Chongqing's gas charges were abnormal, and the gas meter ran fast.

There is also news that the price of electricity for residents will rise, and from June 1, the price of electricity will increase, and the valley peak pricing will be cancelled and the price will be changed to section pricing.

Some of these news are true, such as high-speed rail, Guangzhou water prices and Chongqing gas; Some rumors have been refuted, such as the State Grid saying that it has not received a notice of electricity price adjustment.

Water, electricity and high-speed rail, both infrastructure and public utilities, there is no price elasticity, no matter how high or low the price, you have to use it every day, so once the price increases, it will affect 1.4 billion people in the country.

Therefore, infrastructure and public utilities are monopolies, and the pricing of these goods is strictly controlled by the state.

There are two categories here, one is high-speed rail and electricity, which requires the establishment of a national railway and transmission network, which is controlled by the central enterprise China Railway Group and the State Grid, and their pricing must be agreed by the Price Department of the National Development and Reform Commission, without going through a hearing.

The other is water, gas and heat, which do not require a national network, and the suppliers are local state-owned enterprises, water, gas and heat companies, and one price per city, and if you want to raise the price, you need to hold a hearing to fully absorb public opinion.

Macroscopically speaking, China is a resource-poor country, short of water and oil, and relies on imports for most of its gas, but the price of public utilities in China is not high compared to other countries in the world.

For example, the Wuhan-Guangzhou high-speed railway has a maximum speed of 350 kilometers per hour, a length of 1,068 kilometers, and a second-class seat of 553 yuan, with an average of 5 cents per kilometer.

Compared with the Tokyo to Osaka Shinkansen in Japan, the maximum speed is 270 kilometers per hour, the length is 515 kilometers, and the ordinary car is 814 yuan, with an average of 1 yuan per kilometer.

Japan's Shinkansen is not as fast as China's high-speed rail, and the price is two to three times that of high-speed rail.

For example, the average domestic electricity price in China is 5 cents, the average electricity price in London, England is two yuan, six cents and seven cents, and the United Kingdom is more than five times the electricity price in China.

The price of public utilities in China is low, but the average income of Chinese is not as good as that of developed countries, which is not the reason for the price increase.

Why is the price all rising this year?

First, in the past decade or so, various localities have been increasing investment in the field of people's livelihood, resulting in increasing financial pressure, and price increases can alleviate financial pressure.

Second, the government's land auction revenue, which is the bulk of the government's revenue, has been greatly reduced, and it is now unsustainable for the government to subsidize public utilities and lower the price of municipal water and gas.

For example, in 2023, Jinan's land transfer income will be 54.66 billion yuan, a year-on-year decrease of 39.7%.

With the money for land sales reduced by half and tax revenues not increased, many local governments can only rely on loans to pay salaries, and cannot afford to subsidize water and gas prices.

China is in the midst of a transition between old and new drivers and a change in its development model, where the land finance model has been broken in the past few decades and a new model has not yet been established.

The price increase of public utilities is also a footnote to this great era.

As ordinary people, tighten your spending, leave enough space, and don't let the tide of the times overturn your own boat.

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Personal opinion, for reference only