Why China's Subway Boom Went Bust

Since the turn of the millennium, China has been experiencing a subway boom.

Beijing only managed to finish two subways during the days of China's hardcore communist regime, with a few more built after Deng Xiaoping's market reforms. The real work started when China won the right to host the 2008 Summer Olympics. Beijing built five new lines by 2008, and has opened another eight since the Olympics. A dozen new lines and extensions are scheduled to open in the capital by 2015.

Beijing's subway map, courtesy of Beijing Travel

Meanwhile, smaller Chinese cities are racing to open their first subway lines. Kunming, a city of 3.2 million in Yunnan Province, is the latest to open its first line, but its name – "Line 6" – may turn out to be a bit optimistic.

In 2011, as China's seemly unstoppable economy began to sputter, the subway boom turned bust. In early January 2012, Caixin quoted Zhang Jiangyu, vice director for the powerful National Development and Reform Commission's transit technology planning office, as saying that 70 to 80 percent of China's planned rapid transit lines are being "postponed."

And last month, the other shoe dropped: China's subways are insolvent.

Ying Minghong, chairman of the company that owns Shanghai's fast-growing Metro, told China Daily that of the city's 11 lines, only one makes anything resembling an operating profit.

And that's just on paper. Yang Di, a manager at Shanghai Metro's parent company, told China Daily that only what he termed "optimal resources" were officially counted on balance sheets. Referring to the tangled web of ownership and operations of Shanghai Metro, he said that "it is impossible to know the exact scale of their losses."

Jin Yongxiang, a general manager at a Beijing subway consultancy, estimated to Caixin that "the liability of subway projects nationwide adds up to more than 1 trillion yuan," or $158 billion. "From a macro perspective, that's a huge debt burden."

To a Westerner, these numbers don't seem too scandalous. Rapid transit systems in Europe and North America rarely make much more than 50 percent of their operating costs back in revenue, and new lines are built with the understanding that they will require subsidies to operate.

But in a developing country surrounded by the world's best transit systems, profits – enough to cover operating expenses, at least – were expected.