Is high speed rail an appropriate solution to China’s rail capacity problems?

• Shows that high speed rail costs much more than conventional rail in China.
• Provides evidence of large regional variation in incomes and values of time in China.
• Shows breakeven volumes for high speed rail in China much higher than for Europe.

This paper addresses the question of whether the construction of new high speed lines is the most cost efficient way of solving the rail capacity problems of China. China has the most heavily used rail network in the world and rail traffic has doubled in the last 10 years. Rail continues to have a major share of both passenger and freight markets. The need for a large increase in rail capacity seems clear. If volumes are high enough, there is an argument that system efficiency is maximised by segregating freight and passenger traffic in order to eliminate conflicts between the two and thus maximise capacity utilisation. In Europe this has often been achieved by building new high speed lines for passenger traffic, and leaving existing lines to freight and regional passenger services. It is argued that if a new line has to be constructed, then it is worth the additional cost of providing for high speeds for the extra benefits this brings.This philosophy has been adopted for much of the new construction in China, including the crucial 1300 km Beijing–Shanghai line. But it has been very controversial. It is argued that in Chinese conditions high speed rail is very much more expensive to build than conventional rail. Its construction has led to the Ministry of Railways becoming very heavily in debt, whilst to try to ease the problem high speed rail fares have been set at three times those on conventional rail, reducing the relief to capacity problems by leaving substantial passenger traffic on the existing routes. China, despite its astonishing economic growth in recent decades, remains a relatively poor country and values of time remain low by European standards; moreover they differ enormously between regions.This paper shows that, at existing Chinese values of time, new conventional lines are generally a better solution to Chinese railway capacity problems than high speed rail. Whilst a limited amount of high speed rail construction in the richest and most densely populated parts of the country may be justified, in a country as large and diverse as China, regional differences must be taken into account in determining the appropriate rail investment policy.