Desmond Shum

High-Speed Rail: The Real Estate Express in China China’s high-speed rail (HSR) network spans an impressive 48,000 kilometers, the largest in the world. Yet, behind the gleaming trains and modern stations, there’s a stark reality: over 90% of these lines are operating at a loss. How did China come to invest so heavily in an unprofitable system? The answer lies in local governments’ obsession with land speculation. The Real Investor Behind HSR While China State Railway Group Co., Ltd. (China Railway Group) is the face of HSR construction, local governments are the ones shouldering most of the financial burden—more than half of the total investment in many cases. The China Railway Group itself is drowning in RMB 6 trillion (USD 830 billion) of debt, but that pales in comparison to the debt-fueled spending spree of local governments. Goldman Sachs estimates Chinese local government debt at close to 100 trillion (USD 14 trillion), or about 80% of Chinese GDP. Stations Far from the Action: A Speculator’s Dream Why are so many HSR stations located in the middle of nowhere, often tens of miles from city centers? It’s not poor planning—it’s a deliberate strategy. Local governments designate rural areas as “new development zones,” build HSR stations there, and seize surrounding farmland at low cost. They then auction off the land to developers at inflated prices, hoping for a financial windfall. This speculative cycle, not transport efficiency, has often dictated station placement. The Debt Time Bomb This land-fueled model worked well in China’s booming real estate market. Land sales funded HSR projects and propped up local budgets. But as the real estate market cooled after COVID, the cracks began to show. With dwindling land revenue, local governments are now grappling with unsustainable debt levels, making HSR investments look increasingly precarious. The HSR Legacy High-speed rail in China was never just about transportation. It was about local governments leveraging the tracks to turbocharge land sales. But with China’s real estate bubble effectively burst, this strategy has lost its momentum. Instead of the financial windfall they hoped for, local governments are left with debt—and a high-speed rail network that, while impressive, is struggling to pay for itself. In the end, China’s high-speed rail wasn’t just about connecting cities; it was about connecting government coffers to a fleeting real estate boom. Now, as the bubble deflates, the trains keep running—but the bill is coming due.