Costs and returns matter when cities consider constructing subways

A passenger has his luggage inspected at the entrance of a subway station in Beijing June 29, 2008. [Xinhua]

Wang Xiliang, the mayor of Kunming, capital of Southwest China's Yunnan province, said recently that the city is determined to accelerate the construction of its subway system and the total length of subway will reach 240 kilometers by 2020. While subways bring convenience to residents, the costs also need to be taken into consideration, says Southern Metropolis Daily:

Subways are, of course, something good. Subways mean greater travel convenience for residents and fewer people driving cars, which means better air quality. Besides, subway stations often become the centers of commercial districts, which help boost a city's economy.

However, subways cost money. According to official estimates, during the 13th Five-Year Plan period (2016-20), the total investment on public transportation in Kunming will reach 461 billion yuan ($68 billion), of which 120 billion yuan is to be invested in subway construction. That will be a huge financial burden for Kunming, whose public revenue was about 46 billion yuan in 2015.

The local government of Kunming said they intend to encourage private capital to invest in the subways and make money from co-running them. According to reports by the local media in Kunming, the city's fourth subway line is already under construction and work on the fifth line will begin before the end of the year, both are being funded as public-private partnerships.

The PPP mode is helpful because it can mobilize large quantities of funds to finish large projects, while also putting local government debt under strict control.

But the PPP mode is not without risks. Private capital seeks returns. According to the Kunming subway plan, if the actual traffic flow is 10 percent lower than expected, the local government will have to subsidize the subway.

It should be noted that the risk is not low. Kunming is expected to grow to be 430 square kilometers by 2020, with a population of 4.3 million; as a comparison, Hong Kong has 7.3 million residents within 268 sq km. Thus the Kunming subway will have fewer users than the Hong Kong MTR.

It is time Kunming officials reconsidered their plan. Subways are good, but their huge cost should be taken into consideration, too.