At a cost of trillions, China's 29 subway cities are operating at a loss

Winshare News

2024-05-28 12:55Published in Sichuan

(Source丨"Winshare Gallery")

The price of the frenzied infrastructure boom is coming. Subways in 29 cities in China are operating at a loss, and there is no hope of profitability in the short term.

This is the situation presented in the 2023 financial reports released by the metro groups and rail transit groups in 29 cities in China. The total debt of the 29 city subways in 2023 is 4.3 trillion yuan, and if other subway companies that have not announced financial reports are added, the scale of debt in the national subway industry may be even larger.

In the past four years, the number of subway liabilities in various cities in China has increased year by year.

In terms of revenue scale, Shenzhen Metro continues to rank first in the country, with revenue reaching 25.15 billion yuan in 2023, an increase of 1.18 billion yuan over the previous year. However, after deducting the government's financial subsidy of 730 million yuan, the net profit was negative 180 million yuan.

Beijing Metro is one of the most profitable metro companies, with a net profit attributable to the parent company of 2.4 billion yuan in 2023. However, the government subsidy reached 25.34 billion.

The second place is Chengdu Rail Transit, with a net profit of 830 million yuan attributable to the parent company. Among them, government subsidies amounted to 6.96 billion.

The net profit is followed by Tianjin Rail Transit, Changchun Rail Transit, Qingdao Metro, Ningbo Rail Transit, Nanjing Metro, Fuzhou Metro, etc.

Among the 29 metro companies included in the statistics, 25 have increased revenue, but 17 have seen a decline in profits, and the added value of companies with rising profits is basically less than 200 million yuan. But if you deduct the government's subsidies to these companies, all of them are at a loss.

Although it takes a long period for infrastructure investment and revenue to be flat, the problems revealed by the construction and operation of subways in these places cannot be ignored.

In the past decade, the scale of China's infrastructure has continued to expand. According to the National Development and Reform Commission, from January to December 2022, infrastructure investment (excluding electricity, heat, gas and water production and supply) increased by 9.4% year-on-year, of which investment in road transport increased by 3.7% and investment in railway transport increased by 1.8%.

Taking the subway as an example, in 2016~2022, the number of subway cities in the country increased from 28 to 41, and China's soaring real estate market drove the persistence and fascination of small and medium-sized cities for the subway.

However, with the sharp decline in the real estate market, the property market is sluggish, land transactions are weak, and some urban land finances are tight, and the subway financial subsidies have been greatly affected at the same time, and even unsustainable.

In 2015, in order to prevent local governments from making a desperate attempt to launch subway projects, the state issued detailed policy standards, requiring cities with more than GDP1000 billion yuan, fiscal revenue of more than 10 billion yuan, more than 3 million people in the main urban area, and more than 30,000 passengers per kilometer to be eligible to submit subway construction applications.

In 2018, the State Council once again raised the threshold for urban subway construction, raising the standards of local GDP and fiscal revenue to 300 billion yuan and 30 billion yuan, and resolutely put an end to the unrealistic subway fever in which some small and medium-sized cities blindly covet political achievements.

The intervention of the central government has prevented local governments from blindly fast-forwarding to a certain extent, while those subway and high-speed railways that have already been built are facing huge financial and operational pressures, and in order to maintain their image, the government is stuck in a vicious circle of losses and subsidies.

Observers believe that the root cause of the subway's losses is the high construction and operating costs: the upfront investment of the subway is mainly used for demolition compensation and engineering construction, and the two costs are calculated in units of 100 million yuan. On the other hand, some cities blindly seek infrastructure development and over-advance planning and construction, which makes some rail transit utilization rates low or even vacant.

The obsession with literal brilliance and being far ahead drives the infrastructure madness. We claim to have made remarkable achievements in building the world's largest high-speed rail network, highway network, and world-class port cluster. The mileage of China's railways and highways has increased by about 1.1 million kilometers, which is equivalent to circumnavigating the Earth's equator 27 times and a half .......

Similar to the subway is high-speed rail. According to media reports, up to now, at least 26 high-speed rail stations across the country have not been opened or shut down due to their remote location, insufficient surrounding facilities, and low passenger flow.

How much investment is behind this pile of numbers? How much is the tax? It has brought about urban development and urban interface innovation, but also brought painful sequelae. McKinsey has pointed out that in the past 30 years, China has quickly become the world's largest infrastructure market, but there are also a series of problems such as single financing, low quality and overcapacity.

Greedy for speed, love for vanity. China's infrastructure is like a mirror of China's development, and what you see may be very different from the real thing.

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