On January 5, the Financial Times* reported that China was considering merging its two large state-owned rail manufacturing companies: the China North Locomotive and Rolling Stock Corp (CNR) and the China South Locomotive and Rolling Stock Corp (CSR). The combined company would control more than 90 percent of the Chinese rail equipment market. For this reason, some Chinese government agencies oppose such a move, wanting to maintain a degree of competition.

[*For full access to Financial Times articles linked in this blog post, a subscription is required.]

A merged company would be the largest in this industry worldwide. And supporters feel that a merged company would be a formidable force for capturing export orders—of crucial importance for the years after China’s current investment spree peaks in 2013.

This all comes against the backdrop of a remarkable development. China’s high-speed rail manufacturing industry has emerged in the span of just a few years. China has linked its domestic transportation goals—transforming its once outdated and overburdened rail sector into a strong competitor against environmentally less-benign modes of transportation—to a strong manufacturing policy that included tough deals with foreign rail manufacturers.

In 2007, China set a goal of building about 12,000 kilometers of high-speed lines by 2020, subsequently revised to an even-more ambitious 25,750 kilometers—equivalent to about two-thirds the length of the Equator. China’s massive rail investment program has been mostly debt-financed.  The Financial Times reports that “the proportion of railway construction funded by debt has increased from under 50 percent in 2005 to more than 70 percent” in 2009.

The early high-speed trains were produced by foreign companies and exported to China. But this changed rapidly with the help of stiff local-content requirements that stipulate that 70–90 percent of rail equipment be manufactured domestically. China has deftly used its lucrative market as a lure for foreign manufacturers, striking technology-transfer agreements with companies like Bombardier, Alstom, and Siemens that permitted Chinese manufacturers to reproduce technologies and rail vehicle designs in local factories, and soon thereafter emerge as low-cost competitors.

The Financial Times speculates that foreign companies may have transferred more of their rail technology than they admit publicly, in a strategy to curry favor with China over their competitors but which ultimately benefited Chinese companies.

French and Japanese rail industry executives have criticized China, accusing it of forced technology transfer and even technology theft, while others, such as Siemens of Germany, have been reluctant to complain or insist they are comfortable with China’s policies.

Leading Global Rail Equipment Manufacturers

CNR and CSR have grown into formidable global competitors—selling light rail, commuter, and subway vehicles to a broad range of countries, and increasingly bidding for high-speed projects. (See Figure above.) Although Chinese companies still lag behind world leaders technologically, they are able to compete internationally on price, and the national government plays a key role in providing low-cost financing to help these companies scale up.

China’s rise in rail manufacturing is far from an exception. In industry after industry, the country has risen to the top of the global ranks in a remarkably short amount of time, via similar strategies that also entail generous domestic subsidies. This approach has led to a growing trade row over the promotion of green technologies. In December 2010, the Obama Administration filed a case against China at the World Trade Organization, complaining about Beijing’s subsidies for wind energy. The danger is that such battles—eco-protectionism versus eco-mercantilism—will take precedence over more cooperative policies in pursuit of green technologies.

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Spain committed to heavy rail investments beginning in the late 1980s.  The country now has the largest high-speed rail construction program in Europe, and its network recently surpassed France’s in length.  Its track length rose from just 470 kilometers in 2002 to about 2,000 kilometers at present.  Government plans call for 10,000 kilometers by 2020, which would allow 90 percent of Spaniards to live within 50 kilometers of a station, and make high-speed rail a meaningful alternative to automobile and air travel for much of the country’s population. (See Map.)

High-speed rail ridership is still small compared with France and Germany, but grew tenfold in 1992–2008 and now accounts for 23 percent of total rail travel in Spain.

Spain's Growing High-Speed Rail Network

In 2004, the Spanish government adopted a new strategic plan for transportation through 2020 called the PEIT (Strategic Plan for Infrastructures and Transport). The plan grew out of a recognition of the uneven quality of domestic rail infrastructure and service, low levels of traffic on some routes, difficulties harmonizing operations with other European railways, and conflicts between rail and urban development.

Remarkably, the plan calls for 44 percent of total transportation investment to be directed toward rail, primarily for expansion of the high-speed network. (See Table below, derived from Michael Renner and Gary Gardner, Global Competitiveness in the Rail and Transit Industry, a report available at Worldwatch’s Web site.)

The PEIT is a social, political, environmental, and development plan with transportation at its core. It seeks to integrate rail with other systems of transport; boost rail’s share of trips undertaken; ensure that traditionally underserved areas of Spain are integrated with the rest of the country; provide a high level of quality of service across the entire system; and adopt the latest railroad technology.

In 2010, with Spain deeply mired in the global recession, the government turned to infrastructure investments, especially in rail, as a way to stimulate the economy while accelerating the modernization for the country’s transportation system. Its two-year Extraordinary Infrastructure Plan, rolled out in April 2010, promised to invest some 17 billion Euros (about $24 billion) in transportation.

Unlike the prevailing priorities in the United States (where 80 percent of federal transportation funds go to highways and just 17 percent to public transportation), 70 percent of funds will go to rail and 30 percent to highways. High-speed rail tracks will see $8.3 billion in new investment in 2010 alone. This is about as much as the American Recovery and Reinvestment Act of 2009 (ARRA) makes available.  But on a per capita basis, it is almost seven times as much.

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Shortly before Christmas last year, Spain passed a milestone. The country’s prime minister and king attended a ceremony for the opening of a roughly 400-kilometer high-speed railway line connecting the capital Madrid with the third-largest city of Valencia. That brought Spain’s high-speed network to a total of about 2,000 kilometers, surpassing France’s 1,960 kilometers.

France became Europe’s pioneer of high-speed rail service in 1981 (following Japan, which initiated its Shinkansen trains in 1964 and now has about 2,400 kilometers of track). Spain only entered the high-speed league in 1992, when a line linking Madrid and Sevilla opened. All three countries demonstrate that passenger rail can be a highly attractive and thoroughly competitive transportation option.

France still reigns supreme in Europe by yardsticks other than track length. In 2008, the latest year for which the European Commission offers data, French travelers racked up 52.6 billion passenger kilometers in high-speed rail travel. Second-place Germany had a mere 23.3 billion pkm, followed at a distance by Italy (8.9 billion pkm) and then Spain (5.5 billion pkm).

These figures reflect the fact that France’s high-speed system has been around for a longer time than those in neighboring countries and is thus well established. But France has been able to build up substantial ridership by ensuring that its fast trains (trains à grande vitesse, or TGV) are “TGV pour tous”—that is, affordable for everyone. Thus, discounts are available for the poor, the young, the old, the sick, and large families.

Including all rail trips, fast and slow, France leads the continent with 85 billion passenger kilometers, just slightly more than its neighbor Germany (82 billion passenger km). The United Kingdom and Italy follow at a distance with 52.7 and 49.8 billion pkm, respectively, and Spain with 24 billion pkm. In France, an astounding 62 percent of all train travel took place on high-speed lines in 2008. On the continent as a whole, the average share was one-quarter.

The Figure to the right adjusts rail travel data for the different population sizes of Europe’s five largest countries. Spain still ranks behind France, Germany, and Italy in high-speed travel, but the country’s enormous efforts to expand its tracks (which another Green Economy post will explore) will surely change the picture in years to come. Already, the popular Madrid-to-Barcelona line has drawn many people who formerly traveled by air, and RENFE, Spain’s rail operating agency, expects to quadruple its market share of the Madrid-Valencia distance to 41 percent, again mostly at the expense of airline travel.

To understand why people switch, there is no better way than to experience Spanish rail yourself.  I still recall the pleasant experience of traveling from Sevilla to Cordoba on the AVE (Alta Velocidad Española) train back in 2006. The trains are not just fast, but reliable and comfortable. In today’s world where air travel involves many hours wasted getting to and from airports and waiting at flight gates, and ever-more intrusive security measures, train travel offers an enjoyable alternative.

Spain and its European neighbors remain among the global rail leaders. In 2008, people in the 27 member countries of the European Union traveled 409 billion pkm on all types of intercity and commuter trains. Amazingly, however, that was just slightly more than the rail volume in Japan (405 billion pkm). Given that Japan’s population is just a little over one-quarter that of the EU, that makes the Japanese the world’s rail travel champion. (See Table.)

Passenger Rail Travel and Population Size, 2008

Billion Passenger Kilometers Population (Million) Travel per Capita (Billion pkm)
European Union 409 495 826
United States 37 305 121
Japan 405 128 3,164
China 778 1,325 587
Russia 176 142 1,239

Source: European Commission, Directorate-General for Energy and Transport, EU Energy and Transport in Figures, Statistical Pocketbook 2010 (Luxembourg: Publications Office of the European Union, 2010), p. 106 (for rail statistics); Population Reference Bureau, 2008 World Population Data Sheet (Washington, DC: 2009) (for population data).

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Here is another installment in our series of blog posts on rail developments.  Like the earlier posts in the series, this is drawn from our project with the Apollo Alliance that resulted in two reports published last month.

As global ridership on intercity rail and transit continues to grow, many systems around the world are being expanded or newly constructed. This has led to rising orders for rail vehicles and buses. It has also created an opportunity for countries that lead in this sector to benefit greatly from the manufacturing dollars and job creation this will bring.

Currently, some 400 light rail systems with more than 44,000 rail vehicles are in operation worldwide, another 60 systems or so are under construction, and more than 200 are in the planning stage. Europe has the highest density, with 170 systems and more than 7,900 miles of lines in operation and nearly 100 more in various stages of construction or planning. North America has 30 systems in operation and 10 under construction. But Asia and the Pacific is the region with the fastest growth.

Much of the current excitement is directed toward the expansion of high-speed intercity rail (HSR) lines. In 2009, HSR lines totaling some 6,650 miles were operational, including close to 1,490 miles in Japan and about 1,180 miles in France—the two early pioneers. In 2008, European Union members had a combined high-speed network of close to 3,600 miles. The same year, the world’s HSR fleet consisted of some 2,200 trainsets—1,500 in Western Europe and 650 in Asia (mostly in Japan).

These statistics will change rapidly as more countries jump into the fray. By 2015, the number of trainsets in operation worldwide is expected to rise by 70 percent, to 3,725. The front runners, in order of their track-building ambitions between now and 2025, are China, Spain, France, Japan, Turkey, Germany, Italy, Poland, Portugal, the United States, Sweden, Morocco, Russia, Saudi Arabia, Brazil, India, Iran, South Korea, Argentina, Belgium, the Netherlands, the United Kingdom, and Switzerland. (In the United States, Amtrak’s existing Acela service in the Northeast Corridor is nominally capable of high-speed service, but infrastructure limitations impose effective lower speeds.)

China is in the process of building the most extensive HSR system worldwide, with a total length of more than 15,000 miles. But the densest network is emerging in Spain, which has a goal of 6,200 miles by 2020. If China were to match Spain’s effort relative to land size, it would have to build 118,000 miles of lines; in proportion to population, it would have to build 180,000 miles.

Likewise, if the United States were to match Spain’s commitment, it would have to build 183,000 and 75,000 miles, respectively. This is many orders of magnitude larger than what is currently on the drawing boards. To get anywhere near the effort that countries like China and Spain are undertaking, the United States will need to make a sustained commitment and create a reliable and sustainable source of funding.

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According to the consulting firm SCI Verkehr, worldwide operations and capital budgets for passenger and freight rail were a combined $590 billion in 2008. Another study by Roland Berger consultants finds that the global market for rail goods and related services (not including operations) was $169 billion in 2007, up from $129 billion in 2006. But how do these numbers break down regionally and nationally, and what does this portend for the future?

The United States—and more broadly, the Americas—retains a big market share in freight rail but lags far behind in passenger rail compared to many countries, especially in Europe and Asia. In 2002, North and South America together accounted for 31 percent of the world’s diesel locomotives and a third of the world’s freight wagons, but for only 1.5 percent of the world’s passenger rail cars and less than 1 percent of electric locomotives.

For transit rail cars, the United States accounts for about 5 percent of the global fleet and for a correspondingly small portion of global demand for new cars. Canada and Mexico add another 2 percent, bringing the North American total to 7 percent. By comparison, Japan is home to 11 percent of the global fleet, and Europe 35 percent. Annual U.S. orders for transit cars are erratic, swinging from a range of some 200–400 cars in most years to isolated peak years of about 1,200 in the early 1980s and early 2000s.

This is where change is critical: It is not enough to have one or two years with large orders for rail vehicles. What is needed is a sustained investment program in the United States. Only then will a rail manufacturing industry re-emerge.

The vast majority of the world rail market is infrastructure-related. Rail vehicles account for close to a third of the market volume. Western Europe currently dominates the market, followed by Asia and the Pacific, although other regions lead in specific industry segments, such as services. (See Table 1.) About two-thirds of the market volume is considered “accessible,” meaning that orders are open to bids from international suppliers.

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As U.S. investment in rail and transit has shrunk over the decades, other countries have stepped in to fill the gap. Many countries in Europe and Asia—including, most recently, China—have embraced effective policies and invested significant funds in their rail and transit sectors. U.S. spending on rail and transit relative to GDP and population lags far behind that of these global competitors, especially for intercity passenger rail.

Relative to the size of its economy, China’s investments in rail infrastructure dwarf those of all other countries. (See Figure 1.) In 2008, the country spent an unparalleled $12.50 per $1,000 of GDP [German-language PDF]. Several European countries, including Switzerland, Austria, and the United Kingdom, are also making major commitments. In the United States, even combining rail and all other transit infrastructure, the figure is a comparatively tiny $0.78. If private rail infrastructure (mostly for freight purposes) is included, the number rises to a still modest $1.40.

National Rail Infrastructure Investments for Selected Countries

Similar disparities between the United States and other countries are also evident in comparing combined capital and operations spending. For intercity purposes, China spent $66 per capita in 2009, Germany $156, France $141, the United Kingdom $112, and Italy $87. By contrast, the United States spent only $9, although the stimulus funds under the American Recovery and Reinvestment Act of 2009 (ARRA) temporarily raised this figure to nearly $36.

For urban transit infrastructure, Germany has spent $52 per capita in recent years and France plans to spend $57 in the coming decade, compared with a 2010 figure of $40 for the United States. China spends $28 per capita on subway infrastructure alone. For transit vehicle purchases, Germany spends $36, or twice as much as the United States.

Unless the U.S. seriously steps up its commitment to rail and transit, it is likely to continue to fall even farther behind its global competitors. After the mid-term elections, the prospects have hardly improved, given a Republican-dominated House of Representatives, the defeat of Congressman  Jim Oberstar of Minnesota (who used to chair the Transportation and Infrastructure Committee), and the fact that the incoming governors of of Ohio and Wisconsin have said they do not want federal cash for high-speed rail.

As Yonah Freeman of the TransportPolitic blog puts it: “Two years of Democratic control over the White House and Congress led to little serious agreement about how to find federal funding for highways and transit; meanwhile, despite advances in the fields of livable neighborhoods and high-speed rail, those programs may be subjected to considerable rethinking or even elimination after the change in power in the U.S. House.”

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Mention “green economy,” and almost automatically many people will think about alternative energy sources like wind and solar. Without question, the makeup of our energy system needs to change—badly. But other aspects of greening the economy shouldn’t get short shrift either. Changing the way we travel from point A to point B, limiting the voracious appetite of our buildings for heating and cooling, and making industries like steel, aluminum, and paper far more efficient are all essential tasks. In many cases, these activities might be pursued in parallel, as different “wedges” of a climate stabilization policy.

Better yet, such approaches can be combined in imaginative ways. One encouraging example is found in China, where solar energy and rail endeavors came together in a project inaugurated last month. A 6.68 megawatt photovoltaic system was installed on roofs and awnings of the recently completed Hongqiao Station, part of the Beijing-Shanghai high-speed rail line currently under construction.

The project’s 20,000 solar panels cover an area of 61,000 square meters, forming the largest standalone PV array in the world. The system cost about $23 million to install, produces enough electricity for 12,000 Shanghai households, will cut coal consumption by 2,254 tons, and will reduce carbon emissions by 6,600 tons.

The Hongqiao array is regarded as a pilot project. But given the massive expansion of China’s rail system, it holds enormous potential. Plans are to lengthen the total rail network from 92,000 kilometers today to 120,000 kilometers by 2020, a goal that may even be raised to 150,000 kilometers. The country’s high-speed lines are set to reach a length of 25,000 kilometers. Earlier this year, some 6,500 kilometers had already been constructed.

The rail station sits next to Hongqiao airport

There will be plenty of rail-station roofs to put solar panels on. For that matter, solar panels could be integrated into many more buildings in Shanghai and China’s other metropolises. China and Taiwan together now produce about half the world’s PV panels, but they export most of them. With the Hongqiao project, perhaps that will begin to change.

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High-tech equipment, precision instruments, and miles of electrical wiring at the Siemens production facility in Krefeld, Germany, might fool you into thinking that what’s being manufactured here is an airplane, or perhaps even a space shuttle. But the roughly 2,000 employees are producing a high-speed train, the so-called Velaro D, which is to go into service in Germany at the end of 2011.

Siemens Pressebild, www.siemens.com/press/de/pressebilder/?press=/de/pressebilder/bilder-photonews/2010/pn201006/pn201006-06.htm.

At a length of 200 meters, an eight-wagon Velaro trainset seats about 450 people—comparable to some variants of the Boeing 747. The Velaro’s top speed of 400 kilometers per hour doesn’t match that of a long-range plane. But for distances of up to 650 kilometers, and perhaps even as far as 900 kilometers, high-speed trains can be a faster option than air travel, given that the latter involves trips to often remotely located airports, checking and retrieving luggage, cumbersome security measures, etc. Of course, ticket costs and other factors matter as well, but fast trains have drawn passengers away from air travel in a growing number of places, on routes including Tokyo-Osaka in Japan, or Madrid-Barcelona in Spain.

Another advantage of trains is their lower environmental impact. Siemens claims that the Velaro uses as little as 0.33 liters of gasoline-equivalent per seat per 100 kilometers. (That translates into a stunning 713 miles per gallon per seat.) The Velaro’s greenhouse gas emissions per passenger-kilometer would thus be 90 percent lower than those associated with typical air travel.

In growing numbers of countries, there is palpable excitement about high-speed trains, in line with an overall growth in rail investments. According to German consulting firm SCI Verkehr, worldwide operations and capital budgets for all types of rail (passenger and freight) amounted to a combined $590 billion in 2008. The annual market for rail-related goods and services worldwide runs to about $170 billion, up a fifth from 2006.  It is expected to reach $214 billion by 2016.

In 2009, high-speed rail lines totaling 10,700 kilometers were operational worldwide, including more than 2,000 kilometers in Japan—the pioneer in this field—and about 5,800 kilometers in the European Union. (In the EU, high-speed rail travel accounted for a quarter of all train travel, and rose to almost 100 billion passenger-kilometers in 2008; see Figure.) China is on track to build the longest network by far, planned to reach 25,000 kilometers. Relative to territory, Spain’s goal of 10,000 kilometers by 2020 is even more impressive. If China were to match Spain’s effort relative to land size, it would have to build 190,000 kilometers of lines; in proportion to population, it would have to be 290,000 kilometers.

More and more countries are jumping into the fray. Listed in order of their track-building ambitions between now and 2025, in addition to China and Spain they include France, Turkey, Japan, Germany, Poland, Portugal, Sweden, Italy, Morocco, Russia, Saudi Arabia, Brazil, India, Iran, and some others. The United States, too, is eager to join the high-speed league.

Variants of the Velaro are being sold to Spain, Russia, and China. But Siemens is facing intense competition from other manufacturers. Among them is Bombardier, a Canadian company with extensive European manufacturing activities. It has been involved in producing some of the most famous high-speed trains in the world, including the TGV in France, AVE in Spain, ICE in Germany, ETR in Italy, and CRH 1 in China. And along with France’s Alstom, it built Amtrak’s Acela Express—the closest that the United States has to date come to fast intercity rail travel. Spain’s Talgo and CAF are becoming growing competitors. Meanwhile, Kawasaki and other Japanese companies had long focused on their domestic market but are now increasingly pursuing export markets—already successfully in Taiwan, China, India, and the United Kingdom, and competing for contracts in Brazil, Vietnam, and the United States.

And now, Chinese companies—China Northern Locomotive and Rolling Stock (CNR) and China Southern Locomotive and Rolling Stock (CSR)—are increasingly challenging the established producers. The leading foreign manufacturers were lured by the potentially vast market in China. But they could set up shop in China only under stiff local-content requirements and technology transfer agreements.

Without question, the high-speed rail race is heating up—both in terms of building new lines and deciding who manufactures the trains. It’s a critical part of greening the economy.

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I admit it was in part the thrill of speed that made me take the Maglev train from Shanghai to nearby Pudong International Airport. I was in town for a high-level symposium on economic recovery jointly organized by Germany’s Friedrich Ebert Foundation and the Shanghai Institutes for International Studies.

To my knowledge, there’s no other ground transportation system on Earth that comes close to the dash through the Chinese countryside that reaches a top speed of 431 kilometers per hour (267 miles per hour). Alternatively, I could have taken the metro—the No. 2 line was recently extended out to the airport, part of Shanghai’s rapidly expanding network. Instead, I took the No. 1 and 2 subways from the city center to Longyang Road, where metro and Maglev link up.

The metro ride to Longyang Road (which involved a total of seven stops) took about 40 minutes. The Maglev ride [YouTube video] lasted all of seven minutes covering 30 kilometers (19 miles), or about double the distance of my metro trip. With incredible acceleration, buildings and bridges fly past in a blur, and even at top speed there’s fairly little vibration.

Maglev train at Shanghai's Pudong airport

With the World Expo taking place in Shanghai this May through October, I suspect that Maglev ridership will expand, although ticket prices are about ten times as much as the (cheap) metro fares for a comparable distance. (This is still much cheaper and faster than taking a taxi to the airport.) China also just announced—as I coincidentally read in China Daily while riding the Maglev—that the Chengdu Aircraft Industrial Group in Sichuan province has completed the first domestically made Maglev train, a local version of the German technology used in the Shanghai line.

In truth, the Maglev technology—which relies on powerful magnets rather than on rail tracks—will probably always remain something of an exotic experiment. It’s expensive and you can’t use the technology to its full benefit in densely populated areas or on anything that deviates too much from a straight line. Public opposition has prevented the existing Shanghai line from being extended to the city of Hangzhou or even to Shanghai’s domestic airport, Hongqiao.

More conventional high-speed rail, in the meantime, has growing appeal in numerous countries around the world. China is not only investing vast sums of money in expanding its own network, but is fast becoming a serious competitor internationally. (Though its efforts to learn from and replicate foreign technology has led to angry charges from a Japanese competitor that the country is stealing technology.)

The New York Times recently reported that Chinese companies have already begun to build high-speed lines in Turkey, Venezuela, and Saudi Arabia and are looking for similar deals in other countries, including Brazil and the United States. As a sweetener in its efforts to win a contract in California against intense competition, China is offering to help finance construction of the planned line in the financially strapped state.

So, while you shouldn’t hold your breath waiting for a Maglev line near you to materialize, more conventional high-speed rail lines will likely become more and more prominent.

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