Do we really need so many highways?

CHINA’S toll highway system reported an annual loss of 66 billion yuan (US$10.6 billion) in 2013 due to rising construction costs and high expenses.

On December 23, the Ministry of Transport promulgated the 2013 National Toll Road Statistic Communiqué, stating that in 2013, the toll revenue of China’s toll roads were 365 billion yuan while total expenditure hit 431 billion yuan.  

However, in contrast to the deficit, it is the considerable strides made by highway investment. From 2010 to 2013, China’s new added highway mileage was 26.8 thousand kilometers. Only the highways completed during this period are able to rank the 4th place in the world highway traffic mileage list. This large scale highway construction, to some degree, is due to the vast territory and large population of China. However, do we really need so many highways?  

A comparable reference is: The traffic mileage of highways in Japan, which has more than 100 million populations, is 8000 kilometers; however, for lots of the poor western provinces in China, the traffic mileage scheduled to be completed during the 12th Year Plan period is around 5000 kilometers. On the one hand, it is the 10 times difference in GDP. On the other hand, it is the small difference in traffic mileage per capita. Does this kind of investment a little bit in advance?    

The construction, operation and maintenance of highways all require enormous money. If the traffic flow cannot be guaranteed, the deficit comes. Actually, as early as 2010, the “diseconomy” of highway had already emerged. In 2010, China’s toll roads gained profits of 3.2 billion yuan. However, starting from 2011, the deficit came, with respective yearly loss of 32, 57 and 66 billion yuan.

In face of the phenomenon of “constructing more, losing more”, we need to ask the question: Do we really need so many highways? Highway supporters held that highways have positive externalities. However, as the traffic mileage increases, the “scale diseconomy” problem occurred, and this phenomenon became growing distinct in underdeveloped areas.    

Under current financing system for construction projects, the fund for most highway projects comes from bank loaning and are mostly in the form of “batch loaning, batch repayment” by provinces as the borrowers, which means, part of the tolls collected on the road is put into other toll road projects, and this just results in the strange phenomenon that “repayment become more but not less”. We cannot assert that this method is wrong. At the early stage of construction, this method did solve the problem of fund shortage. However, we should also realize that this method is becoming more and more irrational. For some provinces, they have just one or two profitable highways but need to bear the construction burden of five or six highways. And this explains why highways, as a whole, become deficit.  

Some opinions may hold that it is not only economic benefits but also social benefits you should take into account in terms of highway construction. However, we should point out that highway is not the only approach which can connect undeveloped areas to the outside world. Ordinary roads are also capable to play a role. From a stricter sense, highway is a kind of high end service which should not be classified into the common public service category. For instance, “Every village has a road” is a kind of common public service, but “every village has a highway” is a kind of resource waste.  

Another macro-background we should consider is the “mega-migration of population”. If an area is a place of population outflow, then is it a sort of resource waste to construct highways in such areas. In May this year, Guangxi province increased its toll standards for highways. And the cause for the increase is just because that as the highway traffic mileage increases, the financial deficit of highway construction becomes much aggravated: in 2013, the total toll of vehicle traffic of Guangxi was 8.48 billion yuan while the total fees for management and maintenance of the highways reached 3.13 billion yuan. With the payment of interest on principal of 6.36 billion yuan, which means, the deficit of the highway operation in the province was 1.01 billion yuan.    

China’s traffic mileage of highways has ranked the top place in the world while handing in deficit reports for consecutively 3 years. This means highway as a kind of service has already lost its “economy”. Then, the problem is, can we rein in the large scale of investment as in the past years. Or, this is also another kind of “New Normal” we should face in terms of highway investment.  

Published in Dongfang Daily | 2014-12-24