Local governments can afford to build such expensive infrastructure, but they may not be able to maintain it.

Written by Xiong Zhi

Less than five years after being put into operation, the Foshan Gaoming tram line was suddenly announced to be suspended recently.

Public information shows that the Gaoming Modern Tram Demonstration Line was put into operation in December 2019. It is the first urban rail transit project independently built and operated by Foshan City, and also the world's first commercially operated hydrogen-powered tram. The total investment of the project is 838 million yuan, and the total length is about 6.5 kilometers.

It was launched with the halo of "the world's first", why is it suddenly stopped now?

The official explanation is that "the equipment of the entire system has entered the maintenance period." However, there is no clear answer as to when the maintenance will be completed or whether the system can continue to operate.

In fact, looking across the country, trams in many cities have been suspended, stopped operating, or even demolished.

On the one hand, there is very little passenger flow, and on the other hand, there is heavy daily operation and maintenance costs. The unsupported infrastructure is becoming a heavy burden for some places.

01

In January 2021, Zhuhai tram stopped operating, becoming the first newly built tram project in the country to suspend operations.

Other cities, such as Ruili in Yunnan, started construction with great anticipation, but ended up encountering tightened approvals and project construction stalled. When netizens asked about the progress, officials bluntly pointed out that "the feasibility study was insufficient and the decision was blind."

This bleak scene of silence due to poor operation is in stark contrast to the local enthusiasm for the tram project more than ten years ago.

Around 2010, under the wave of rail transit construction, various places set their sights on trams. Reports show that at the peak, more than 90 cities across the country announced plans to build trams, including some small and medium-sized cities such as Tianshui and Honghe.

Local governments are keen to launch trams, primarily for the purpose of supplementing transportation.

Compared with buses, trams have a larger capacity and can be used as sightseeing routes. Compared with subways and light rails, which are also rail transit systems, trams have lower construction costs and shorter construction periods. Of course, more importantly, the approval process is more flexible.

Rail transit, represented by subways, has strict construction thresholds. To apply for construction, certain standards must be met in terms of GDP scale, urban population, public budget revenue, government debt, etc.

For example, the "Opinions on Further Strengthening the Planning, Construction and Management of Urban Rail Transit" issued in 2018 mentioned that the construction of subways and light rails must meet the following conditions: general public fiscal budget revenue of more than 30 billion yuan, regional GDP of more than 300 billion yuan, and a permanent urban population of more than 3 million...

The threshold for tram construction is more relaxed and there are no such strict indicator restrictions. Also, because the cost is lower and the risk is smaller, the approval authority for construction applications is not concentrated in the National Development and Reform Commission, but is directly delegated to the provincial level.

Therefore, in the context of failing to meet the standards for subway construction, many cities have resorted to the second best option and looked for trams as a "substitute".

After all, not everyone can build rail transit. It has certain thresholds and will become a symbol of local development strength. It can not only improve transportation, but also enhance the local image and become the political achievement of local officials.

02

However, some cities that have invested heavily have apparently overestimated their passenger flow and underestimated the subsequent operating costs of trams.

Judging from data from various places, it is generally the case that passenger flow on tram lines does not meet standards.

In 2023, the average passenger intensity of urban rail transit in the country was 5,500 passengers/km/day, among which trams were far below the average level.

Taking the Gaoming tram line in Foshan, which was suspended this time, as an example, the average daily passenger flow in 2021 was about 578 people, and it has not been announced after 2022. When a passenger experienced it, he found that "including the crew, there may be less than 10 people in all the carriages."

The ticket revenue of several hundred thousand yuan a year is naturally unable to cover the operating subsidies of hundreds of millions of yuan. The shortfall can only be covered by local finances.

The tram has become a "haunted" tram. Hundreds of millions of dollars have been invested in it, but it has become a tram that transports empty chairs back and forth. Of course, there is a factor of unscientific line planning.

For example, some places build trams to stimulate the development of new cities and new districts, so the stations are far away from the city center and are relatively remote.However, the urban population expanded slowly, and new towns and new districts failed to develop, resulting in the tram lines becoming useless.

In addition, many small and medium-sized cities have only one or two tram lines, which are relatively simple and cannot form a network, making it difficult to achieve convenient travel. Naturally, citizens are rarely willing to take them, and at most they just take them for a one-time sightseeing experience.

However, under the pressure of high costs and scarce passenger flow, tram projects in many places have come to a standstill. The core problem lies not in the scientific nature of line planning or station site selection, but in the tram projects themselves, which may not be blindly launched driven by political achievements.

The cost of trams is lower, but compared to subways, which cost 1 billion yuan per kilometer, generally speaking, it takes hundreds of millions of yuan to build a tram line. For small and medium-sized cities, this is definitely not a small amount.

In order to reduce the pressure of construction, cities generally adopt the PPP model to introduce social capital investment. It seems that the local finance does not spend money directly, but this model only transfers the expenditure pressure of the local finance to the later stage.

Rail transit is a public welfare service and ticket prices cannot be set too high. Ticket prices include income from advertising and other resources, which is far from enough to cover subsequent operating costs.Social capital investment itself is aimed at making profits, and to maintain daily operations, it can only rely on government subsidies.

As the report mentioned, the construction investment of this line in Foshan is 838 million yuan, and the annual subsidy reaches hundreds of millions of yuan. The Tianshui tram, which was previously criticized by the central government for blindly borrowing money to build, has an annual income of 1.6 million yuan in the first phase of the line, and the annual operating cost is as high as 40 million yuan.

In a word, local governments can afford to build such expensive infrastructure, but they may not be able to maintain it.

03

In recent years, with the booming infrastructure construction, the "railway, highway and airport" (i.e. railways, roads and airports) fields have achieved leapfrog rapid development and optimization and upgrading, which has driven economic development and brought great convenience to the Chinese people.

But in fact, it is not just trams. Many infrastructure projects with huge investments are facing increasing pressure to "support" them.The situation of being unable to afford or support people will become more and more common in the future.

On the one hand, many infrastructure projects adopt the PPP model, which effectively reduces the direct financial burden of local governments in the early stages of the project. However, as the project progresses and operates, the subsidy pressure on local governments in the later stages will increase day by day.

On the other hand, any infrastructure project has a life cycle, and as time goes by, infrastructure "aging" will inevitably come. After more than 10 years of high-intensity operation and utilization, we are entering a new stage of "infrastructure maintenance".

Compared with the significant investment-driving effect brought about by the early stage of project construction, the later maintenance and repair work in the "major infrastructure maintenance" stage will incur huge costs.

For example, the service life of railway-related equipment is generally about 10 years. For example, the peak period for bidding for EMUs was from 2013 to 2017, which means that in the next few years, many EMU equipment will be approaching the end of their design service life and will usher in a stage of large-scale maintenance and renewal.

It benefits industries related to equipment manufacturing and maintenance, but large-scale equipment upgrades will also incur considerable costs.

In the highway sector, the design life of my country's high-grade highway pavement is generally 15 to 20 years. However, according to statistics, in 2021, more than 50% of the country's second-level and above high-grade highways are more than 15 years old, and the subsequent maintenance costs will become increasingly higher.

Some people would say that the maintenance and renewal of these infrastructures may not necessarily be paid for directly by local governments. For example, the renewal of railway equipment is paid for by the national railway, but the wool comes from the sheep, and the expenditure pressure will eventually be transferred to the local finances.

For the general public, the pressure of supporting infrastructure will have a dual impact:

On the one hand, price increases for infrastructure services may become more and more common, as evidenced by the price increases on many high-speed rail lines this year. On the other hand, as the burden of infrastructure repair and maintenance increases, public finance investment in other public projects will be squeezed, which may lead to a reduction in the level of social welfare.

So relatively speaking, the most effective way to stop losses is to shut down a seriously underfunded tram or to dismantle a high-speed rail station with low passenger flow. Continuing to maintain it will only become a bottomless pit for capital investment.

Of course, the huge waste of funds it caused is still a heavy warning:

Investment in large infrastructure projects must be done with extreme caution. There should be more rationality and less over-planning; more scientific demonstration and less blind debt-raising. Just focusing on construction without paying attention to later operation and maintenance; grabbing political achievements in hand and leaving the debt burden to successors, this short-sighted behavior will cause endless harm.