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Tracking Prices

More of China’s local railway companies are adjusting the prices of high-speed rail tickets based on demand and traffic, a move expected to propel market-oriented reforms across the country’s rail network

By NewsChina Updated Feb.1

Unlike air travel, departure times are rarely factored into ticket prices on China’s railways. They have remained the same for years.  

But that train officially left the station when China State Railway Group Co, Ltd. (CR) subsidiaries announced ticket-pricing adjustments for nearly 1,000 high-speed trains starting December 1.  CR Shanghai, for example, announced it would adjust ticket prices for its southeast coastal railway line “based on market demand and passenger traffic, and will form a multi-graded price system within the limit differentiated by seasons, traveling hours, seats and sections.” The adjustment, which affects more than 400 trains, includes both increased and reduced prices, with the biggest discounts reaching up to 45 percent. 

Following the announcements, fluctuations in ticket prices for high-speed trains departing after December 1 were already visible on 12306.cn, China Railway’s official booking website. 

The decision, which according to CR was made by regional railway companies, is a substantial step in the market reform of China’s railways.  

The most recent reforms started in 2013 when the Ministry of Railways was dissolved. The predecessor of CR, the China Railway Corporation (CRC), was created to separate government functions from enterprise management. More structural reforms followed. As early as 2016, the National Development and Reform Commission (NDRC) delegated ticket pricing controls for trains running at speeds of more than 200 kilometers per hour to the transport companies in charge. 

Experts said the round of adjustments would lead to price changes for railway lines nationwide, ease supply and demand imbalances and better allocate railway resources. 
Ticket to Ride
The recent adjustments are based on years of trials that began with a piloted dynamic pricing system in 2015. The CRC followed in 2016 with select price changes for high-speed train tickets between neighboring cities.  

The most recent adjustments mainly target intercity trains with departure and destination stations under the administration of the same railway company, said Li Wenxing, director of the research center for transportation pricing at Beijing Jiaotong University.  

However, the December 1 adjustments signal nationwide changes to come, Li added.  

“It’s a pilot program that will spread to all 18 railway companies and cover the whole nation from January 1, 2020,” Li said. Transportation authorities have yet to confirm this claim. 

Meanwhile, experts predict that the pricing of lower speed passenger trains, which the NDRC oversees, might also be handed over to CR.  

In 2016, the NDRC said in a notice that individual companies would set ticket prices for high-speed trains that run more than 200 kilometers per hour. However, an NDRC list of pricing control items from the central government released in November did not mention high-speed rail or speed limits, a hint that price adjustments may stretch to trains running between 160-180 kilometers per hour.  

Experts said the revision might also leave the door open for price adjustments across all railways, especially since many subsidiary companies are replacing their older trains with a 2018 model.  

The question remains whether authorities will define the 2018 train model, which has a maximum speed of 160 kilometers per hour, as a high-speed train. 

The NDRC held the power to set prices for all railway transport until 2013, when the State Council, China’s cabinet, proposed building a dynamic pricing system for railway freight that correlated with road freight prices. The State Council required the NDRC to provide referential price ranges instead of fixed prices. The proposal went into effect in February 2014.  

There was no progress made in passenger transport until 2016. Previously, the NDRC set train ticket prices based on distance alone. The price of every route was fixed and remained unchanged despite market conditions.  

“Now there are three pricing methods: government pricing (for regular passenger trains), government referential prices (for railway freight) and market prices (for high-speed trains),” Li explained. 

One Not for All 
As of September, 2019, China’s high-speed rail network stretched more than 30,000 kilometers, making it the largest in the world. In 2018, passenger volume reached 3.31 billion. In 2018 alone, investment reached 802.8 billion yuan (US$114b), resulting in 4,683 kilometers of new track.  

However, the majority of CR’s 18 subsidiary companies have been bleeding money for years. CR reported losses of 205 million yuan (US$29m) for the first half of 2019. Eleven out of its 18 subsidiaries were in the red, with the worst losing 6.7 billion yuan (US$953m), according to a prospectus from the Beijing-Shanghai High Speed Railway Company whose IPO application was approved in November.  

Authorities have long seen ticket price reform as an important way to alleviate the woes plaguing China’s railway system. A rigid price system makes it difficult to adjust prices that reflect market demand or that could help increase ridership. It has also caused severe supply and demand imbalances. For example, trains are relatively empty during weekdays and non-holidays, resulting in a waste of railway resources. But demand runs so high during holiday periods that scalping is a persistent problem. Also, the railway system, shielded from market demands, has long been criticized for its low efficiency and lackluster customer service.  Reforms have been slow. The CRC did not make immediate price adjustments. During the 2016 two sessions (the annual meetings of the National People’s Congress and the Chinese People’s Political Consultative Conference), CRC General Manager Sheng Guangzu told media that the company would manage the pricing of high-speed train tickets more stringently. Admitting that there are many factors to consider in setting prices, such as market competition and tolerance, Sheng said: “There was no schedule for large-scale adjustments to high-speed train ticket prices.” 

In the following years, minor price adjustments for high-speed trains were made in Hainan Province and sections of southeastern coastal lines.  

Previously, if a railway operator wanted to adjust the price of a certain line, it would need to file reports up through a ladder of superiors until it could get approval from CR. Any responses to market changes would be slow, Li said.  

“Generally speaking, railway companies in different regions better understand the market and are more sensitive to market changes, so they are more suited to adjust the prices flexibly,” Li said.  

But experts said there would also be challenges for companies across different railroads to coordinate in setting prices.  

According to Li, it’s relatively easy for CR subsidiary companies to make decisions on their own rail lines, but the process would be slower for lines shared between companies. Also, since cross-regional lines usually involve several companies, revenue shares will also influence pricing decisions.  

In addition, there are railway operators engaged in construction that usually receive investment from local governments and financing platforms such as asset management companies.  

The Beijing-Shanghai High Speed Railway Company, for example, though controlled by CR, also received investment from local financing platforms. However, the roles that local governments and investors will play in future pricing policy, particularly for the Beijing-Shanghai High Speed Railway Company once it gets listed on the Shanghai Stock Exchange, remain unknown. 

There is also some controversy. For example, some critics said that applying the same pricing system to railways in mountainous regions would not offset their high construction costs. But Li called it unrealistic to factor these costs into ticket prices for lines in Western China, such as the Sichuan-Tibet Railway, which are built as a public service. “If you ask the passengers to shoulder the cost [by charging more], even fewer people will choose that railway,” Li said. He suggested lowering the ticket price of intercity trains to increase ridership as a means to increase overall revenue. 

During previous rounds of price adjustments, some in the industry also raised concerns that increasing high-speed train ticket prices based on cost and market demand would harm the public interest. 

But some experts argued that non high-speed rail already fulfills the obligation to provide public transportation. High-speed railway could be considered a luxury service, with its higher construction and overhead costs reflected in ticket prices.  

An NDRC analyst told NewsChina on condition of anonymity that one difficulty in pricing high-speed train tickets is whether CR is defined as a for-profit company or a public service.  

The expert said that if railways are considered infrastructure for public transport, they should shoulder certain social responsibilities. The government should also set pricing limits to protect them from the forces of a completely open and competitive market.  

In the 2015 notice, the NDRC also demanded that the CRC report the pricing of high-speed train tickets every quarter as a supervisory measure.  

“The marketization of high-speed rail is unique and the degree of pricing autonomy among the different regions is limited,” Li said.