Asia on the fast train to growth

Author: Cameron Gordon, UC

Is it going to be an ‘Asian century’ for high-speed rail? What would that mean for the region’s economic development?

Conventional rail has been around for more than a century and a half. Economic historians have shown extensively how the building of railways throughout the world in the 19th century brought large decreases in travel times. Even more beneficial was the contribution of railways to increasing the size and spatial shape of markets for outputs and inputs, which in turn allowed for greater potential demand, greater division of labour and economies of scale. It also produced many ‘agglomeration economies’, where increased spatial and geographic density in production has positive effects like knowledge spillovers.

Thanks to improvements in track, vehicles, signalling, alignments (long straight-rail lines above ground are best for speed) and the minimisation of stops along corridors, HSR can achieve maximum speeds of 300 kph or more, a good 100–150 kph more than maximum speeds on regular rail.

From a traveller’s perspective, an average speed of 250 kph allows a 500 km trip to be considered a day return, which allows for a wider geographic set of commuting and business travel choices. Because HSR typically goes downtown to downtown it also limits the need for the modal shifts between different forms of transport that travel via airports typically requires. These dynamics help feed agglomeration economies and shifts in economic geography.

Asia was the birthplace of HSR. Japan began construction of the world’s first HSR with its ‘bullet trains’ in 1959, with the first service opening in 1964 to coincide with the Tokyo Olympics. Its dedicated high-speed network, separate from the regular rail network, became the inspiration for the French high-speed AVE network.

Taiwan decided to proceed with its own HSR system in 1989, privatising the project in 1993 by offering a 35-year concession to the successful private bidder. Full service commenced in 2007. To date, Taiwan’s is the only HSR system in the world built with mostly private capital. Almost concurrently, South Korea began proceeding with its own, largely government run and financed, HSR system, with construction starting in 1992. Commercial service commenced in 2004.

China, the region’s largest economy, came to HSR relatively late but its strides are singularly impressive. Construction of China’s first HSR line began in 1999. The line between Qinhuangdao and Shenyang commenced service in October 2003 and by 2011 the country had built 7500 km of HSR — the largest HSR network in the world. Current plans are to double that network by 2020 to 16,000 km.

The economics of HSR are consistent across countries. HSR tends to dominate as a transport option in the 200 km to 500 km trip range on a downtown to downtown basis, and competes with air travel in the 500 km to 600 km range. A key reason for this is the ‘day return’ dynamic mentioned earlier. The Ningbo–Shanghai HSR link, for example, has a roughly 2-hour journey time, so returns are considered day-trips rather than overnight trips.

HSR is very expensive to build, requiring deep pools of capital. There must also be enough travellers with sufficient disposable income and a high personal premium on time to want the service and pay HSR fares. Japan, Taiwan, South Korea and now China have all reached a sufficient development level for HSR.

Like the original railways, HSR is changing the economic geography of the countries where it exists. Of particular note are agglomeration gains through urban specialisation. The Asian nations benefit substantially in this regard because of their large and dense urban populations.

China is in the vanguard of making strategic investments in a potential Asia-wide HSR network. For example, China is having discussions with the Turkish government for joint finance of a Kars–Edirne line that would reduce travel time across Turkey from 36 hours to 12 hours.

The Indian subcontinent, home to half of the region’s population, is much poorer and HSR there farther away. The country has a conventional rail network that is one of the world’s largest, but it is in decrepit condition. The Indian railways minister announced a US$9 billion investment plan in 2010 to decrease travel times, but this is far below the necessary funding for HSR.

A question for regional policymakers is whether an Asia-wide HSR network is worth investing in. Governments throughout the region, including in Thailand and Malaysia, have put money on the proposition, owing to HSRs impressive results in the past. This is in spite of the fact that investing in HSR is ‘strategic’ — funds are unlikely to be fully recovered. Productivity gains must take centre stage in the analysis and design of HSR projects as this is the main benefit HSR will deliver. With growing momentum for coordinated region-wide investment in infrastructure and connectivity through institutions like APEC and the proposed Asian infrastructure investment bank, HSR rail investment might only now be reaching top speed.

Cameron Gordon is Associate Professor of Economics at the University of Canberra.