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Speeding up railway reform
By Xin Zhiming (China Daily)
Updated: 2005-01-22 10:06

The Chinese suffer the same travel headache every year when they take trains home for Spring Festival family reunions. There is as yet no cure.

As the festival draws near, passengers know they will be repeating what they experience every year: First taking great pains to secure a ticket - usually by asking people who have contacts in the railway industry to help, or by buying tickets from scalpers at marked-up prices - then spending hours in a tensely packed coach like sardines before getting home.

In 2002, the Ministry of Railways (MOR) devised a price hike solution to ease the tension. Prices would be raised only during public holidays and a public hearing was held that year to give approval to the plan. Two years later, the ministry decided to continue the practice, although the price rises have brought virtually nothing but criticism.

The ministry decided that during this year's holiday, which starts on February 9, the price of hard seat tickets would rise by 15 per cent and sleepers by 20 per cent from February 1 to 7 and in the two weeks after February 11.

The direct reason for the hike, in the ministry's words, is to "diversify journeys in peak times to ease the travel bottleneck".

It seems sound in an economics context. As prices rise, demand is forced down or diverted to other products and services,  so goes the generally accepted economics theory.

The general price-demand relation theory, however, is not applicable to all circumstances. In some cases, the demand does not change significantly even if prices rise.

Economists use the term "price elasticity of demand" to measure how sensitive the demand for a product or service is in response to a price change. Demand is deemed elastic if it fluctuates substantially to changes in the price. It is seen as rigid if it responds only slightly.

China's railway service during Spring holiday is an example of a rigid demand. In China, the tradition for family reunions is so powerful that price becomes the least important factor - provided it is not ridiculously high. A 15-20 per cent rise will not work against such a deep-rooted tradition.

Travellers are certainly not willing to pay higher prices, but they will nevertheless buy the tickets.

The ministry said that during the upcoming holiday season, there would be an unprecedented 145 million journeys by train, 4.97 million - or 3.5 per cent more - than in the same period last year.

In spite of the policy being in force for two years, the ministry's figures show "diversifying journeys in peak times" does not work.

The rise in ticket prices is set to increase revenue in the railway industry. Consumers will have to pay more for their holiday travel. But the measure will not result in a smaller number of travellers or better services at the current stage.

Cashing in on the demand rise during the holiday and claiming it is doing the public good is simply the ministry playing a double game.

Two other methods could work, however.

One is to cut prices in the run-up to the peak season. The economic benefits may drive some consumers to adjust their agenda to bypass the peak time.

It would also be fairer for passengers who have had to suffer higher prices.

But revenue could suffer in this way and this is something the ministry is bound not to accept.

The other option would be more extreme. Economists estimate that to substantially reduce the number of passengers during the Spring Festival holiday, an 80 or even 100 per cent price hike may produce the desired effect. Such a drastic move, however, would cost the ministry its moral ground and become unaffordable - both financially and morally - for the public.

A hard nut to crack.

A long-term solution is to increase the carrying capacity of the railway industry. Reform is a must to break the monopoly and introduce more operators to reduce costs and increase the quantity of services.

The ministry has promised to spend on building more railways. This year, total spending in railway construction is estimated to exceed 100 billion yuan (US$12 billion), nearly double last year's figure. Large-scale construction will go in full swing this year.

Special bonds will be issued and public funds wooed to finance the construction.

In January last year, the State Council approved the country's medium- and long-term railway network plan, which aims to expand the current network.

The ministry seems to have put the emphasis on the construction of more railways. It is certainly necessary. At the same time, however, systematic reform is indispensable to breaking monopoly and allowing more competitors to operate in the railway sector.

Competition is the best way to improve management, lower operational costs and ensure the operators provide cheap services for consumers.

An ideal scenario for the railway industry in the future would be the establishment of a tripartite structure, in which the State is responsible for drafting development strategies for the industry, a special supervisory body plays the role of industrial regulator, and different operators operate in the railway network.

This is a long-term blueprint, which may make our travels by train easier and more comfortable, especially during holidays.

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