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Economic Growth Puts Strain on China's Transportation Systems - 2004-04-29

China's rapid economic growth is contributing to what experts say is an increasing strain on the country's transportation systems. The Chinese government is spending billions of dollars to modernize and expand railways, highways and seaports. Some economists warn the expansion is not keeping pace with growth and poor or obsolete transport systems could hamper China's prospects.

At few places is China's transport crunch more evident than at the Beijing central railway station during the week-long May Day holiday, when many Chinese go on vacation.

This businessman in his 30's said that he is frustrated, because he cannot get from Beijing to Shanghai, a main-line route. He said that there are plenty of trains, but tickets have long been sold out.

"There are nine trains going to Shanghai, but no tickets for any of them," he added. "I can not get moving."

In China, trains carrying passengers often have priority over those carrying coal, the country's chief energy source. Transport specialist Graham Smith at the World Bank's Beijing office said that the saturation of rail lines has stalled the development of freight transport.

"A lot of the freight trains are actually halted or held back during these peak holiday periods to give priority to passengers," he explained. "We have not seen very much development of container transportation by rail, because, if it has to compete with coal [and] it has to compete with passenger services for limited track capacity, it comes in a poor third."

The result has been damaging to China's manufacturing industry, at a time when the government wants to move factories away from the more prosperous eastern coast to the impoverished western provinces.

John Fossey is with Drewry Shipping Consultants, a London company that advises global shipping lines and investment banks doing business in China. "Transport, in terms of the overall cost of the product, is much greater in China than it would be in North America or in Europe, where the systems are much more seamless or streamlined," he said.

The World Bank estimate logistics account for 20 percent of a product's price in China, compared with 10 percent in the United States.

Mr. Fossey said that China needs to do more to facilitate the transfer of goods from one province to another. He added that there is no system in place that gives transportation companies permits or licenses to take goods or vehicles across provincial boundaries.

"Consequently, goods have to be transferred between trucks at border posts and even between city-states." he said. "That really means that the cargo is going to take much longer to move."

He believes that the current practice also results in the greater risk of theft or damage to cargo. World Bank officials estimate the amount of goods lost due to poor or obsolete transportation infrastructure has equaled one percent of China's gross domestic product in recent years.

For years, the Chinese government has been massively upgrading its transportation infrastructure, improving seaports, doubling railroad tracks and building thousands of kilometers of new four-lane highways.

The World Bank's Graham Smith said that the government is showing it can meet the challenge. "China has spent something between 3.5 and 4 percent of its GDP on transportation infrastructure and that is really exceptional," he said.

However, Mr. Smith believes that it will take time before the upgrades make a difference in China's ability to deliver goods in a seamless fashion comparable to the West.

Analysts say, despite high logistics costs and longer travel times, multinational companies appear willing to keep investing in China's inland areas. They say low labor costs and a skilled workforce are investment incentives unmatched by any other country in the world.