Do not bundle railway construction and land development

The government should not subsidize railway investors through granting them the right to develop land along the railway, says an article in the 21st Century Business Herald. Excerpts:

Some local governments in Hubei, Sichuan, Shandong and Jiangxi are very passionate about opening railway construction market to private investors. But the private investors are not that active for the governments’ invitations.

It takes a long time and huge amounts of money to build railways. The investors must wait many more years to see returns. To solve the issue, some people proposed giving investors land use rights over some land along the railway lines.

Land development is one of the most profitable businesses in China. Although the land business can inspire private capital to participate in railway construction, this model’s shortcoming is obvious, and the land development model cannot promote the healthy development of railways in the long run.

Private investors will naturally flock to railway construction projects that have the highest returns from the land business in the better-off eastern part of China.

Yet, most of the key projects are in the less-developed southwestern and central parts of China.

To fund railways with land development is actually another kind of government subsidy. Those proposing the idea think the rise inland value comes from the construction of railways. In fact, the hike in land value is mainly caused by the urban construction.

To fund the railway with land development will divert the attention of railway investors from management and operation to seeking fast profits from land development.

The people hope opening the railway market to private investors will boost competition in the industry, and end the State-owned railway corporation’s monopoly.

If land business is involved, hungry private investors will probably focus on developing the land to get back their investment as soon as possible. The improvement of management and service levels of China’s railway industry will not be the biggest concerns for the investors.