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For Whom the Roads Toll

China has published updated regulations on its highway network, but will the new rules stamp out the enthusiasm for ever more loss-making roads?

By NewsChina Updated Mar.1

Until 1988, China did not have a single highway open to traffic. By the end of 2017, the network totaled 132,600 kilometers, the longest in the world. Many of these highways are toll roads, but despite the achievement, there is increasing pushback from a public that is fed up over the high cost of traveling long distances, as well as concern over the mounting pile of debts amassed due to highway construction. After three decades of fast-paced highway construction, analysts are asking if it is time to put the brakes on new toll roads.  

Amid the controversy, the government published the second revision of a new draft of the Regulation on the Administration of Toll Roads for public comment on December 20, 2018. Three years ago, the first revision to the regulation was published for public comment, but so far, no results of that consultation have been released. 

High Cost, Low Profit
China’s Regulation on the Administration of Toll Roads was implemented in 2004. Alongside national reforms in the financing and investment of toll roads, the previous development model of using loans to construct them, which are then repaid through toll fees, is increasingly unsustainable. Finding funding to build new roads and maintain the existing network is becoming much harder.  

According to China’s Ministry of Transport (MOT), even though the highway network is longer, the level of tolls collected has remained the same. It is therefore urgent to update the management of the toll road network to meet the needs of the modern era.  

“It’s really important for the road construction industry that the regulations are revised. We hope to be able to form a complete system in which the quality and efficiency of toll roads are improved while their costs and rates are cut,” Xu Li, a senior engineer with the China Highway and Transportation Society, told NewsChina. 

Xu consulted on the revision of the rules twice. She said that the MOT has been working to adjust and improve the regulation and conduct policy research. “Toll roads have a great impact on public livelihoods, and the central government is very cautious when making revisions,” she said. 

According to the new draft, priority will be given to the development of free public roads, which accounts for 97 percent of the total national road network. The construction, maintenance and overheads of these public roads are mainly covered by public funds from fuel and vehicle purchase taxes. China’s toll roads are mostly highways, but the 2015 draft of the new regulation said that tolls could also be collected on second-grade roads and above. The new draft requires that new toll roads can only be highways. Xu said that tollgates on first- and second-grade roads will be phased out in the near future. 

Construction Fever 
When China started its reform and opening-up process in the late 1970s, its infrastructure was very poor. Back then there was not a single highway nationwide and arterial roads were overburdened with traffic. Data from the MOT showed that in 1984, national fiscal revenue stood at 146.5 billion yuan (US$21.6b), but only 500 million yuan (US$74m) was allocated to road construction. 

In late 1984, the State Council, China’s Cabinet, implemented several investment and financing mechanisms for road construction through national investment, financing by local governments and private and foreign capital, which sustained the three-decade road construction boom. 

Construction started in 1984 on China’s first highway, the Shanghai-Jiading Highway which was a relatively modest 24.4 kilometers long. It opened in 1988. A mere six years later, there were already 34,200 kilometers of highway. In December 2004, China’s transport authorities unveiled a plan for an 85,000-kilometer national highway network with nine arteries from north to south and 18 arteries from west to east. On June 20, 2013, the MOT announced an expansion of the network to 118,000 kilometers by 2030.  

“Not all of them are national highways,” said Yu Mingyuan, a senior researcher at the MOT’s Research Institute of Highway. He told NewsChina that some are classed as local highways, but the national highway network has reached 100,000 kilometers, with another 30,000 kilometers scheduled.  

Yu said that the national highway network is a national strategic project but local highway networks are built by local governments. “What the national government vowed to control is the scale of local highway networks, rather than the national highway network,” he said. 

Driving Debt 
Since 2013, the MOT has made public its annual report on toll roads nationwide. China’s toll roads had amassed a debt pile of 5.28 trillion yuan (US$780b) by the end of 2017, increasing by 429 billion yuan (US$63b) year-on-year. Meanwhile, toll fee collection stood at 513 billion yuan (US$76b), but expenditure totaled 916 billion yuan (US$135b), leading to a loss of 403 billion yuan (US$59b). Nevertheless, construction fever continues to this day. 

“In China, people put too much on the value of road construction, such as luring investment or serving as vanity projects,” said an insider who spoke to NewsChina on condition of anonymity. “It is no longer a simple economic phenomenon.” 

Yu Mingyuan told our reporter that construction fever runs rampant in some provinces, and so the main goal of the new regulation will be to reel in the highway construction mania. Yet against the backdrop of current operation and management modes, he added, there is little room to downsize projects.  

Yu argued that according to requirements, any highway construction has to be started with at least 30 percent of funding in place – not from loans, but in fact, many projects only get going after securing bank loans. In 2017 alone, 81.3 percent of toll road income nationwide went to repaying loans and interest. 

In addition, Yu said there is no mechanism to adjust the charging standards of toll roads. From 2003 to 2017, toll collections increased by 20 percent but the cost of living has increased several fold. Meanwhile, in 2003, the construction cost of toll roads was 39 million yuan (US$5.76m) per kilometer but it climbed to 80 million yuan (US$11.8m) in 2017. “As for highways, the construction costs are even higher,” said the insider who declined to be named. According to the MOT, highway construction cost is roughly 200 million yuan (US$30m) per kilometer. 
According to the new draft regulation, tollgates will have different pricing in accordance with vehicle type, road section, payment methods, road quality, service and traffic. What’s more, it will require provincial governments to introduce dynamic toll rates – at least one price adjustment every five years. 

Yu added that the current debt pile also derives from a lack of long-term low interest bank loans. In many countries, infrastructure such as toll roads is completed after obtaining bank loans at low rates of interest, and during its operation only the interest needs to be paid back. He said financial institutions can issue financial products to prevent financial risks. 

In July 2017, the ministries of finance and transport issued a guideline allowing local governments to issue special bonds to bolster the construction of toll roads and provincial-level governments can sell these bonds within the central government’s approved annual quotas.  

“The draft regulation this time will partly alleviate the debt risks, but it is not likely to fundamentally solve the problem,” Yu said. –“A variety of measures should be introduced to solve and prevent toll roads from sinking further into debt.” 

The 2018 Government Work Report has proposed cutting toll fees, and this has become a focus of the new revision. Zhao Jian, a professor at Beijing Jiaotong University, told our reporter that China built the world’s longest highway network in a very short period, meaning that most roads operate at a loss. To meet the costs of road management and maintenance, and paying off the construction debt, tolls will continue to be collected in the long run. 

Xu Li told NewsChina that highways need to be overhauled at least every 10 years, besides regular maintenance. In 2017, the cost of maintaining the highway network stood at 53.4 billion yuan (US$7.9b), up from 39 billion yuan (US$5.8b) in 2013. 

“If the scale of toll roads is not scrutinized, the public will eventually have to assume the burden of these debts,” she said.