FREIGHT RATES IN COMMUNIST CHINA 1950-57

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A001200140002-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 44
• Document Creation Date: December 23, 2016
• Document Release Date: July 15, 2013
• Sequence Number: 2
• Publication Date: November 1, 1958
• Content Type: REPORT

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CONFItEttbillAL
ECONOMIC INTELLIGENCE REPORT
N? 64
FREIGHT RATES IN COMMUNIST CHINA
1950-57
CIA/RR 156
November 1958
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
ZaRTIDENTIAL
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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ECONOMIC INTELLIGENCE REPORT
? FREIGHT RATES IN COMMUNIST CHINA
1950-57
CIA/RR 156
(ORR Project 43.1954)
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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FOREWORD
This report represents a first attempt to summarize and inter-
pret the available information on freight rates in Communist China.
Railroad and waterway freight rates are covered in considerable
detail, whereas highway freight rates are accorded somewhat less
attention In addition to a discus-
sion of the freight rates pertaining to each form of transportation,
rates for the different forms of transportation are dompared in
order to determine their effects on each other and on the general
economy of the country.
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CONTENTS
Summary
I. Introduction
II. Railroad Freight Rates
Page
1
4
9
A.
History
9
B.
Freight Rate Structure, 1950-55
11
1. Classification
11
2. Exceptions
12
3. Distance
13
C.
Revision of Freight Rates, 1955
14
1. Unification
14
2. New Rate Philosophy
14
3. Implementation
16
D.
Rates and Profits
17
III.
Freight Rates for Water Transport
18
A.
History
18
B.
Principles of Ratemaking
19
1. Rates; Profits, and Investment
20
2. Rates for Bulk Cargoes
20
3. Interprovincial and Intraprovincial Rates
21
4. Reduction of Rates with Distance
21
C.
Rate Structure, 1956
21
1. Classification
22
2. Distance'214
3. Exceptions and Special Rates
25
IV.
Freight Rates for Highway Transport
25
A. Rate Structure
25
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Page
1. Classification 26
2. Exceptions 26
3. Distance 27
B. Highway Freight Rates in Yunnan Province, 1956 .
C. Rate Level
D. Rates and Costs
27
29
30
Tables
1. Comparative Levels of Freight Rates for Selected Means
of Inland Transport in China, Before World War II
2. Comparative Levels of Freight Costs for Selected Means
of Modern Transport in Communist China, 1955
3: Freight Rates for Shipment of Selected Commodities to and
from Southwest China, by River and by Rail, 1956-57
4. Rates in Effect for Class 27 Freight in Carload Lots on the
the Railroads of Communist China, 1950-55
5. Classification of Principal Commodity Groups Carried on
the Inland Water Transport System of Communist China,
1956
6. Freight Rates for Highway Transport on Internal Routes
In Yunnan Province, 1956
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8
15
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Charts
Following Page
Figure 1. Communist China: Comparison of Railroad
Freight Rates f6r Commodities in Classes
1, 15, and 30, 1950-55 12
Figure 2. Communist China: Comparison of Waterway
Freight Rates for Commodities in Classes
1, 12, and 25, 1956 24
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(Project 2+3.19510
FREIGHT RATES IN COMMUNIST CHINA*
1950-57
Summary
The control of freight rates in Communist China represents the
power to control the vital arteries of the national economy. The ulti-
mate authority to regulate freight rates is vested in the supreme
administrative body, the State Administrative Council) which dictates
the general features of the rate structure. Actual formulation of rate
schedules is delegated to the Ministry of Railroads for railroad rates
and to the Ministry of Communications for rates on the major water
routes, both inland and coastal. The rates for motor trucks, local
water routes, and native transport are established by the local authori-
ties, both provincial and municipal.
In pre-CoMmunist China, competition played a greater part in regu-
lating freight rates, which were considerably lower on the railroads
than on other carriers. For example, if the railroad carload rate
equaled 100, the junk rate was 530; the river steamship rate, 640; the
animal-drawn cart rate, 880; the human carrier rate, 2,400; and the -
motor vehicle rate, 3,000. These competitively determined relation-
ships probably reflected costs of transportation fairly accurately.
. Under the Chinese Communists, operating costs for motor trucks and
river steamers have decreased considerably, although they remain sub-
stantially above the average for rail operations. Current costs of
coastal shipping, however, are lower than railroad.costs. For example,
If the cost of moving freight by rail equals 100, the cost of coastal
shipping is 81, and the cost of transportation on the Yangtze River is
142. In order to divert traffic from the railroads, the government has
advocated that railroad freight rates be set higher than waterway
freight rates where parallel routes exist and above highway freight
rates for very short hauls. '
During 1950-55, shipment of freight on the railroads of Communist
China was governed by the rate schedule established in August 1950. The
rates' set up by this schedule for 30 classes of freight generally re-
flected commodity prices. The schedule also utilized the concept of a
decreasing rate per ton-kilometer as the distance increased up to a .
certain optimum distance. Although the absolute differences between the
rates per ton-kilotheter for the higher and lower classes of merchandise
* The estimates and conclusions in this report represent the best
judgment of this Office as of 1 August.1958.
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were great, the relationship remained constant at all distances. Within
each class the minimum mileage-block rate was normally about 60 percent
of the maximum. Gradually, the Chinese Communists came to realize that
the rate structure published in 1950 was closely related to charging
what the traffic would bear; this is, high rates were charged for high-
priced goods and low rates for low-priced goods. Consequently, many
special rates were introduced to bring the rate structure more into
line with the needs of the country. For example, special rates were
established to encourage industrial plants to locate nearer the source
of raw materials; to place plants in locations strategically less
vulnerable; to stimulate the sale of products abroad in order to
generate additional foreign exchange; to aid coal production; and to
promote certain local industries.
One of the most important reasons for revising railroad freight
rates in 1955 was the need for a unified rate structure for the entire
country. The authorities emphasized that standardization of railroad
freight rates would promote especially the development of heavy indus-
try. The old rate structure with its 30 evenly spaced rate classes
was abolished. The classes in the new structure were established by
groUping together goods of a similar type into a class with appropriate
subdivisions. These new,homogeneous and more numerous classes (now
totaling 77) were combined into 13 larger groups according to function
or source. These 13 broad categories were, id turn, divided into two
general groups, agricultural products and industrial products. The
new rates were designed also to penalize "irrational shipments" and to
divert very short-haul traffic from the railroads to trucks and native
transport. The schedule provided for an increase in rates per ton-
kilometer for some commodities beyond a distance considered to be
optimum. The changes in rates which took place under the new schedule
tended to offset each other so that there was little downward or upward
change in the rate structure as a whole.
A comparison of railroad freight rates from the 1950 rate schedule'
with figures announced as average railroad costs for 1956 reveals that
little or no freight moved at rates below cost. Even freight in the
lowest class moving the average length of haul of 489 kilometers (km)
was carried at a profit of more than 23 percent per ton-kilometer above
the average cost of all freight, whereas the highest class of freight
carried the same distance earned a profit of nearly 2,000 percent. This
evidence substantiates Chinese Communist statements that the rail-
roads' produce large annual profits. These sizable profit margins
undoubtedly reflected, in part at least, attempts to divert traffic
from the railroads to the waterways.
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The fundamental consideration in setting freight rates for water
transport in Communist China is that there should be a "rational" ratio
between rates for water transport and rates for other forms of trans-
portation. The "rational" ratio is based on the assumption that move-
ment of goods by water transport costs less than by the other media,
especially railroads. Therefore, water transport rates, by reflecting
relative costs, should be lower than railroad rates. Even in Communist
China, however, it is recognized that costs of water transport are
higher than costs of other forms of transport under some conditions.
The over-all cost of transport on the Yangtze River, for example, is
higher than on the railroads. In order to preserve the so-called
"rational" ratio, water transport charges have been reduced to the
maximum extent Possible, while still maintaining some profit margin.
Railroad rates, on the other hand, have been set at a relatively high
level, and profits consequently have been high.
A unified system of freight rates for water transport was not estab-
lished in Communist China until January 1956, although there may have
been a fairly widespread coordination of rates for water transport in
1951 as a result of' the revision of the railroad tariff in mid-1950: The
1956 rate schedule contained 25 classes of freight, with most commodities
of heavy density and low value included in the lower classes. Although .
there are fewer classes of freight in the rate structure for water trans-
port than in the rate structure for rail transport, the former is more
complex. Separate tariffs are given for the north coast, the south
coast, and each major inland waterway system crossing provincial bound-
aries. The rates for south coast shipping are consistently higher than
those for the north coast, reflecting the cost situation in the two
areas. For all forms of water transport, rates per ton-kilometer appar-
ently decrease consistently as distance increases.
Highway freight rates in Communist China are established by both
provincial and municipal authorities. A simplified system of rates for
various classes of freight is used, although considerably fewer classes
have been set up than for either rail or water transport. In Yunnan
Province in 1956 the lowest or fifth class rates on internal routes
varied from 74 to 79 percent of first class rates and on interprovincial
routes, from 74 to 82 percent of first class rates. Within each class,
rates for trucks burning solid fuel generally were less than rates for
trucks burning liquid fuel.
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have decreased considerably in recent years, perhaps by 20 to 30 per-
cent between 1952 and 1956 for the country as a Whole. In spite of
these reductions, highway transport remains considerably more expensive
for the shipper than either rail or water transport. Although one
authority has estimated that motor truck transport is about 30 times as
expensive as rail transport, other information indicates that truck
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transport is from 2 to 10 times as expensive, depending on the type of
commodity hauled, .the length of haul, and the location or terrain.
I. Introduction.
Transportation in Communist China.is largely a state monopoly, and
the control of freight rates thus represents the power. to control.the
vital arteries of the national economy. The ultimate authority to -
regulate freight rates is vested in the supreme administrative body,
the State Administrative Council, headed by the Premier. This body
dictates the general features of the rate structure and gives the final
approval that is necessary for major changes in rates to become valid.
The actual work of drawing up and administering the rate schedule is
delegated to the appropriate ministries. Railroad rates are established
by the Ministry of Railroads, and rates for the major water routes, both
inland and coastal, are set by the Ministry of Communications. The
freight. rates for motor trucks, local water routes, and native land
transport* are established by local authorities, both provincial and
municipal. There is some evidence, however, that some truck rates,
especially for interprovincial routes, may be governed by the Ministry
of Communications. In any case, it can be assumed that the central
authorities are not hesitant to provide guidance to the local authori-
ties in their ratemaking functions.
The Chinese Communists appreciate the economic significance of the
control of freight rates. Indeed, they have stated publicly that it is
especially desirable to use freight rates as a method of control, 1/**
but they have to keep in mind various and conflicting goals in employ-
ing these controls. On the one hand, they desire that all freight rates
be kept low in order to promote development of the economy, and, on the
?other hand, they look upon the railroads in particular as an important
profitmaking organ of the state. Superimposed upon these two conflicting
goals is the principle ?of using freight rates to promote or discourage
other economic activities in accord with over-all economic aims.
Before analyzing ratemaking in the various media of transportation,
it is desirable to look briefly at relative rate levels among the media
and to consider the reasons for the differences that exist. In this
* See Table 1, p. 5, below, for the various types of transportation
in the native sector.
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process the conflict existing-between the intentions of the planners
and the realities of transportation costs becomes immediately apparent. ?
Because of the general inability of modern transportation to meet the
existing and rapidly increasing demand for transportation, the authori-
ties are anxious to make maximum use of all available means of moving
freight. In particular, this means placing mote of the burden on tradi-
tional native transport, which has reserve capacity, and upon the
waterways, which can increase their capacity without costly construction
of new routes and roadbeds. Efforts to direct traffic into these
channels, however, have been frustrated by the fact that native trans-
port and water transport (except on the lower Yangtze River and major
coastal routes) cost more, sometimes much more, than movement by rail.
In the pre-Communist era, when freight rates were regulated more by
' competition, the comparative levels. of rates for the various means of
inland transport were as Shown in Table 1. -
Table 1
Comparative Levels of Freight Rates for Selected Means
of Inland Transport in China
Before World War II 2/
Railroad Rate = 100
Type of Transport Comparative Freight Rates
Modern Sector
Railroads 100
River steamships 640
Motor vehicles 3,000
Native Sector
Junks 530
Handcarts.
2 men 84o
man ? 940
Animal-drawn carts
4 animals 500
1 animal 880
Camels 1,100
Mules, donkeys, and horses 1,400
Rickshaws 2,100
Human carriers 2,400
a. 2/
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These competitively determined relationships probably reflected
costs fairly accurately. 'Under the Chinese Communists, operating
costs for motor trucks and river steamers have gone down considerably,
although they still remain substantially above the average for rail
Operations. Currently, however, coastal shipping costs are lower than
railroad shipping costs. The relative levels of costs for the various
means of modern transport in 1955 are shown in Table 2.
. Table 2
Comparative Levels of Freight Costs for Selected Means
of Modern Transport in Communist China a/
1955
Railroad Rate = 100
Coastal shipping (north coast)
Coastal shipping12/
Railroads
Yangtze River transport b./
Coastal shipping (south coast)
64
81
100
142
160
a. 2/
b. Excluding port expenses. If the latter were in-
cluded, water transport costs would be much higher.
It is difficult to account for the fact that the cost of water
. transport along the south coast is higher than that on the railroads or
along the north coast. It may be that the volume of traffic ?along the
south coast is not high enough to utilize vessel capacity as effi-
ciently as along the north coast. A vessel operating with less than a
full load incurs higher unit costs than one with a full load. Because
voyages along the south coast are shorter than those'along the north
coast and because most of the ports have less mechanical loading and
unloading equipment, the time south coast vessels spend in port is
increased. A vessel loading or unloading in a port is incurring costs
rather than earning revenue. Hence the less time a vessel spends in
port the more its potential earning power is increased because of the
greater cargo it can carry compared with such continuing costs as
wages, stores, and bunkers. Weather hazards also may be reflected in
the higher costs.. Storms are more severe and more frequent on the
south coast than on the north coast. Although the storms in most cases
would not seriously affect the railroads, vessels sometimes have to.
spend several days in port to escape hazardous sailing conditions.
Extra mileage may be involved ib finding a safe port, thus increasing
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costs, and costs continue while the vessel's voyage is thus inter-
rupted. 4/ All these factors could increase water transport costs and
probably contributeto the situation on the south China coast.
Railroads, on the other hand, are subject to the law of increasing
returns. 2/ Because of the heavy investment of the railroads in roadbed
and supporting facilities, which is not characteristic of other forms of
transport, railroad unit costs tend to decline as the volume of traffic
Increases, at least up to the point of most efficient utilization of the
existing plant. As long as there is a substantial amount of unutilized
capacity, increases in traffic will lower unit costs because the fixed
or constant expenses can be spread over a larger amount of business.
This phenomenon probably accounts, in part at least, for the fact that
railroad costs in Communist China are lower than those of other forms of
transport except coastal shipping on the north coast.
Any attempt to relate rates to operating costs would concentrate the
demand for inland transport almost exclusively on the railroads.. In
actuality, there tends to be such a concentration of demand where the
railroads provide service, but the fact that several cities and most of
the towns and villages are not on the railroad lines automatically
forces much traffic onto the other media, regardless of cost to the
shipper. The pressure of traffic on the capacity of the railroad system
Is such, however, that the authorities are anxious to divert traffic
from the railroads wherever they can. The two most promising prospects
for such diversion are those waterWays, inland or coastal, which
effectively parallel railroad service, and the use of motor trucks and
wagons for hauls of under 30 kilometers (km).
In 1956) after the latest revisions of the railroad and waterway
freight rate structures, shippers still found it cheaper to use the
railroads for most parallel routes. The chief exception was the haul
from the northeast (Manchuria) and parts of north China to Shanghai,
which, for most bulk goods, was 30 percent cheaper by coastal shipping
than by rail. ?/ On most of the remaining competitive runs it has not
been possible to shift demand by lowering water shipping rates because
of the high costs of operation. On the Szechwan section of the Yangtze
River for example, there are cases' where the rate per ton of shipment
of certain goods by river is more than 60 yuan higher than shipment by
rail, although the average difference in rates is only about 5 yuan per
ton.* 2/ Table 3** contains comparative rates for shipment of selected
commodities to and from southwest China by river and by rail after the
opening of the Pao-chi - Ch'eng-tu Railroad in 1956. The table indi-
cates the wide spread between river and railroad rates for traffic' in
* Tonnages are given in metric tons throughout this report unless
otherwise indicated.
** Table 3 follows on p. 8.
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Table 3
Freight Rates for Shipment of Selected Commodities to and from Southwest China
by River and by Rail a/
1956-57
Yuan per Ton
Commodity
Direction
of Shipment
Route
Transportation Rates
Excess of River Rates
over Railroad Rates
River
Rail
Rice
Downriver
Chteng-tu -
59.43
38.31
21.12
Shanghai
Rice
Downriver
Ch'eng-tu -
77.46
44.85
32.61
Mukden
Rice
Downriver
Chungking-
39.65.
46.12
-6.47
Shanghai
Rice
Downriver
Chungking-
57.73
52.29
5.44
MUkden
Steel
Upriver
Shanghai-
61.23
41.40
19.83
Chungking
General cargo
Upriver
Shanghai-
130.15
127.18
2.97
Chungking
General cargo
Upriver
Shanghai -
171.76
105.52
66.24
Chteng-tu
Chemical
fertilizer,
Chemical
fertilizer
Upriver
Upriver
Shanghai-
Chungking
Shanghai -
Ch'eng-tu
73.98
94.64
48.20
4o.04
25.78
54.60
a. _j
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this area and points up the special advantage of the railroads in
carrying commodities into Szechwan in competition with traffic moving
upstream on the Yangtze River.
Some inland waterway transport organs operate at losses even under
their apparently high rates. Until efforts to lower the cost of water
shipping are successful, the only apparent way to divert traffic from
the railroads is to boost railroad freight rates substantially on those
lines which run parallel to waterways. This is just what Chinese
'Communist writers on transportation economics have been advocating. 51
In the case of short-haul traffic, the economics of the situation
tend to support the goal of diverting traffic from the railroads to
motor trucks and native transport. The dissipation of the country's
small freight car park in relatively unproductive short-haul traffic is
uneconomic. On such short hauls the daily production of a freight car
in terms of ton-kilometers is one-tenth the average daily production
for all freight cars. Yet, late in 1956 on a 20-km haul, the rates for
shipping such goods as coal, iron ore, bricks and tile, and lumber by
railroad were 25 to 30 percent lower than by motor truck or cart. 10/
The obvious remedy, and the one advocated in Communist Chins:, is to
raise the short-haul rates for railroads above the truck and cart
rates 11/
Although adjustments in railroad freight rates in 1955 were designed
to divert traffic to waterways, trucks, and native transport, no
specific evidence indicates that the changes have been effective. These
changes fit so well the needs and methods of the regime, however, that
they are most likely to occur if they have not already.
II. Railroad Freight Rates.
A. History.*
From 19146 to 1949 the Chinese Communists were operating in-
creasingly large segments of the railroad.system on the Chinese mainland.
Because this was the period of the civil war, military needs took.
priority, and the nonmilitary functions of the railroads took second
place. The situation is somewhat understated in a 1950 Chinese CoMtunist
publication which says that from 1946 to 1949 "the rate structure was
Simple and'imperfect." In the northeast; 10 rate classifications had
been developed for freight, and in north China; which had been conquered
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more recently, 411 freight was lumped. into 5 rate classifications.*
Much improvising was done to adapt to rapidly changing conditions.
When the Communist conquest spread across the Yangtze Biter into south
China in mid-1949, the railroad situation became more stable, especially
north of the river, and a new freight rate structure was adopted on
10 July 1949. The new classification provided for 20 classes of. freight
rates, with the rates in class 1 being 200 times those of class 20.
This new structure had so many weaknesses that it was replaced within
6 months. In fact it had been substantially abolished before that by
the widespread introduction of exceptions and unscheduled rate reduc-
tions for the higher priced traffic. Among the weaknesses of the struc-
ture were the provision of classes for many goods that were rarely, if
ever, shipped by rail and the omission of some native goods that nor-
mally moved in quantity by rail. Its greatest weakness, however, was
that the range of rates between goods in the higher classes and those in
the lower was too wide. Consequently,. high-priced, high-rate goods were
diverted to other means of transport while low-priced goods, many of
which were carried below cost, overflowed the railroad freight stations.
As a result, railroad operations incurred extensive financial losses.
In the revision of 6 December 1949 the range of 200 to 1 between
the first and twentieth classes was reduced to 25 to 1. The new
schedule also clarified many obscurities in the earlier tariff and
provided more appropriate classifications of goods.
This improvement still did not go far enough, ahd a new major
revision took place on 1 August 1950. The number of classes was
raised to 30, and the range was reduced to 17 .to 1. The structure was
further adapted to the economic and propaganda needs of the regime.
For example, key export gdods were given lower rates, and newsprint was
lowered.from class 9 to class 17. Educational equipment was also
lowered to class 17, having been previously in the top-cost class 1.
The differential between less-than-carload-lot (LCL) shipments was
reduced from 2 times the carload-lot rate to 1-7 times because the
authorities came to recognize that even in a planned economy LCL
shipments are necessary and should not be penalized too severely.
In 1955 another complete reform of railroad freight rates was
promulgated. The primary accomplishment of the new rate structure was
the abolition of the two-schedule system which maintained separate. rates
for China proper and the northeast. The new, unified rate schedule
also made a number of other adjustments including raising rates on very
short hauls. 1.31
* The term freight/Classification refers to the process of grouping
thousands of commodities into a limited number of classes for purposes
of ratemaking.
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B. Freight Rate Structure, 1950-55.
1. Classification.
For 5 very important and formative years, shipment of
freight on the Chinese Communist railroads was governed by the 1 August
1950 rate schedule. The 30 classes of railroad freight established by
this schedule were designed to afford a sufficient number of categories
to provide appropriate rates for a wide variety of products. Although
the categories were supposed to be based on socialist principle's, they
generally reflected the price of goods. Thus the lowest rate class,
30, applied solely to ashes, natural ice, water, and snow -- commodities
whose value to the socialist state and the "broad masses of the people"
was not Such that their transport should be encouraged by low freight
rates. In class 29, dried manure, sand, coal balls, and coal bricks
represented products of substantial (but certainly not maximum) economic
usefulness, but the remaining items in the class (mud, earth, and broken
tiles) were obviously not materials whose movement by rail should be
promoted. Class 28 consisted of stone chips, gravel, and grain husks.
Clearly, the low rates for most of the commodities in classes 28 to 30
reflected low values rather than usefulness to the economy.*
The next four categories, however, were very important.
They represented some of the commodities most essential in building the
nation's economy and included about 75 percent Of the total tonnage
shipped by rail. The most important single class was 27, which con-
sisted of coal, iron ore, and bauxite -- between 35 and 40 percent of
the total rail tonnage. Class 26 included three vital categories:
basic industrial materials (coke, lime, scrap iron and steel, and pig
Iron); construction materials (brick, tile, tile pipe, logs, and tele-
phone poles); and chemical and fish fertilizers. Class 25 included
iron and steel shapes, plates7 and rods; steel rails; scrap paper;
rags; wood scraps; and firewood. A wide variety of products was in-
cluded in class 24, among the most important being railroad ties;
milled lumber; and many staple foodstuffs, such as kaoliang, coarse
rice, peanuts, sweet potatoes, and certain types of flour.
The rates per ton-kilometer for classes 1, 15, and 30** are
compared graphically in Figure 1.*** It is notable that although the
** Class 1 contains such items as shark fins, swallow nests, pearls,
antiques, explosives and munitions; class 15 cOntains dried fruits,
small animals, kerosine, lead, zinc, aluminum, copper, man- or animal-
powered vehicles, basic chemical products in liquid form, and some
categories of heat and electrical insulating materials; and class 30
contains natural ice, water, snow, and ashes.
*** Following p. 12.
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absolute differences are great, the relationships of the classes remain
constant. For example, rates for class 1 items are 17 times those of
class 30 at all distances (0.17 yuan* to 0.01 yuan per ton-kilometer
on short hauls and 0.1 yuan to 0.006 yuan per ton-kilometer on 2,000-km
hauls), and in each class the minimum mileage-block rate is normally
about 60 percent of the maximum mileage-block rate. 15/
In spite of the fact that basic industrial raw materials
and fuel fall into the low-rate classes, transportation costs still
account for a large proportion of the prices of the following goods:
22 percent for coal, 17 percent for timber, and 30 percent for iron
ore. 16/ Thus the level of freight rates on these commodities sub-
stantially influences their ultimate price and indirectly controls
their use.
2. Exceptions.
The Chinese Communist authorities began to realize gradually
that the 1950 rate structure was not entirely consonant with their
economic and political aims. In March 1951 the magazine, Jen-min T'ieh-
tao (People's Railways), stated that the determination of freight rates
depended on: (a) the cost of transportation, (b) the amount the
traffic would bear, and (c) the economic situation. 17/ A study of the
1950 rate structure indicates that the second of these considerations
predominated.
In order to bring the rate structure more in line with the
needs of the socialist economy, special rates began to be introduced
soon after the 1950 rate schedule was published. Some of these were
temporary, some seasonal, and some local. Others presaged permanent
changes in the rate schedule. The same article discussed nine kinds of
special rates and the purposes therefor. In essence these purposes were
as follows:
a. To encourage industrial plants to locate nearer the
source of raw materials,** freight rates. were reduced 50 percent for
industries moving from Shanghai to the interior.
* Because of the difficulty oT determining a valid exchange rate, yuan
have not been converted into dollars . The rate of 2.46 yuan to US $.1
usually quoted is based on the yuan,sterling rate for telegraphic trans-
fers. This rate is arbitrarily established and maintained .and bears no
relationship to the value of goods in international trade or to the
internal price levels.
** Also, although not stated in the magazine, to 'place the plants in
locations strategically less; vulnerable.
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COMMUNIST CHINA Figure 1
COMPARISON OF RAILROAD FREIGHT RATES ,
FOR COMMODITIES IN CLASSES 1, 15, AND 30, 1950-55
600
400
.200
.100
.020
.010
.008
.006
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Distance in Hand ads of Klorneters
26918 11-58 .
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28
32
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b. To supplement the insufficient supply of cotton, im-
ported cotton received a 50-percent reduction of railroad freight rates.
c. To stimulate production and sale abroad of handicrafts
and works of art in order to get more foreign exchange, all such prod-
ucts certified for sale abroad were shipped as class 13.
d. To generate additional foreign exchange a number of
other. products for export were given various rate reductions.
e. To aid production of coal, pit props shipped over a
distance longer than 500 km received a 30-percent reductiOn.
f. To encourage shippers to supply their own freight
dunnage, thus supplementing the short supply of the Ministry of Rail-
roads, canvas, ropes, matting, props; and the like, were returned to
shiPpers free of charge, and empty barrels and cases were returned at
half price.
g. To promote the distribution of propaganda, all moving
picture machines, films, costumes, travel equipment, and the like,
when certified by the Ministry of Culture, were carried as class 18.
h. To reduce the spread of contagious diseases among
humans and animals, all goods certified for this purpose by the Minis-
try of Public Health or the Ministry of Agriculture were treated as
class 18.
i. For the promotion of local industries, disaster relief,
and numerous other Special purposes, rate reductions were made on an
ad hoc basis.
3. Distance.
The simplest form of rate structure is one in which rates
are based on distance. In the typical distance-rate system, the rates
do not change with each additional kilometer of distance. Instead, a
distance-block system is used, with blocks of varying length. In
addition, most distance rates are constructed on the tapering princi-
ple: that is, the rates increase with distance, but not as rapidly as
distance increases. Although the total rate is greater for longer
than for shorter distances, the rate per kilometer is less for the
longer distances.
There are several reasons for not increasing freight rates.
in exact proportion to distance. In the first place, terminal costs
are the same regardless of the length of haul. The longer the haul;
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the greater the distance over which the constant terminal cost can be
spread. A second reason for the lower rates per ton-kilometer for
longer hauls is that even the line-haul or conveyance cost is con-
sidered to be relatively lower for the longer hauls. For longer
distances, through-freight trains which make fewer stops and operate
more efficiently may be used. A third reason for using the tapering
principle is to prevent the rates from restricting the movement of
long-distance traffic. Long-distance rates must be kept low enough to
enable the traffic to move. 18/
The Chinese Communist planners went nearly all the way
with the concept of decreasing the rate per ton-kilometer as the
distance increases. This attitude' can be illustrated with the rates
for class 27 in the 1950 rate schedule. The rates for this class
remain, an even 0.01360 yuan per ton-kilometer for the .first 200 km.
The rates from there on drop steadily until 2,000 km is reached.
Beyond 2,000 km the rate per ton-kilometer increases slightly, but
for all practical purposes never again reaches a rate as high as the
one for 1,900 km. The specific rates are shown in Table 4.*
C. Revision of Freight Rates, 1955.
1. Unification.
The first of the two main reasons for revising the rate
structure in 1955 was the need for a unified rate structure for the
entire country. The awkward practice of having different rates for the
parts of the country north and south of the Great Wall had endured long
after the reasons for the differential ceased to exist, and the desira-
bility of the reform to A single national schedule is too obvious to
require discussion here. Suffice it to say that the new rates generally
represented a compromise between the original two sets of rates. On
balance, there was little upward or downward change in the rate struc-
ture as a whole. 12/
2. New Rate Philosophy.
By 1955 the Chinese Communist authorities were frankly
admitting in the press that the existing rate structure had been based
mainly on the principle of charging freight rates according to the
price of goods:' that is, high rates for high-priced goods and low rates
for low-priced goods.** The considerations guiding the establishment
of the new rates contained in the 1955 revision are stated to have been
as follows: (a) the demands of national economic development, (b) pro-
duction and marketing conditions for the category of goods concerned,
* Table 4 follows on p. 15.
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Table 4
Rates in Effect for Class 27 Freight in Carload Lots
on the Railroads of Communist China 2/
1950-55
Yuan per Ton-Kilometer
Distance
(Kilometers)
Rate
Distance
(Kilometers)
Rate
200
0.01360
2,000
0.00796
300
0.01315
2,100
0.00797
400
0.01292
2,200
0.00797
500
0.01278
2,300
0.00798
600
o.o1224
2,400
0.00799
700
0.01185
2,500
o.00800
800
0.01156
2,600
0.00800
900
0.01133
2,700
0.00801
1,000
0.01115
.2,800
0.00801
1,100
0.01063
2,900
0.00302
1,200
0.01020
3,000
0.00802
1,300.
0.00983
3,100
0.00803
1,400
0.00952
3,200
0.00303
1,500
0.00925
3,300
0.00804
1,600
0.00892
3,400
o.008o4
1,700
0.00864
5,000
0.00808
1,800
0.00839
10,000
0.00812
1,9oo
0.00816
a. The Chinese rate schedule lists rates accumula-
tively in increments of 10 km. -Uneven distances are
?rounded upward to the nearest 10. For purposes of
illustration, increments of 100 km have been used in
this table instead of 10.
and (c) transportation conditions. These principles are in much
better accord with the economic and political philosophy of the
regime than the previous practice, which was in fact closely related
to charging what the traffic would bear. The authorities emphasized
that standardization of railroad freight rates would especially
_promote the development of heavy industry. Standardization also
would help individual enterprises, not only in formulating their pro-
duction plans but also in accurately working out their production
costs, in reducing the difficulties of computing freight charges, and
in conserving manpower.
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3. Implementation.
It is not possible to discuss in detail the new rate sched-
ule implemented in 1955, because only that portion containing the
general rate regulations and the new classification is available.
That portion of the schedule, however, and the analyses and explana-
tions appearing in the Chinese Communist press provide enough. gener-
alized information to give a fairly/good picture of what was done.
To begin with, the old rate structure with its 30 evenly
spaced rate classes was abolished. The classes in the new structure
were established by grouping together goods of a similar type into a
class with appropriate subdivisions (items). This grouping contrasts
with the extreme heterogeneity of the old classes, which included in
a single class such varied articles as peanuts, railroad ties, and
palm-leaf umbrellas. These new homogeneous and more numerous classes
(now totaling 77) were combined into 13 larger groups according to
function or source.* These 13 broad categories were in turn divided
into two general groups. The first 4 of the 13 categories (including
18 classes) constitute the group called "agricultural products." The
remainder form the group of "industrial products." The bases of
distinction between these two large groups appear to be the source of
the commodity and its end use. Goods which come from the land or sea
and are, pr were, alive or growing are considered agricultural pro-
ducts. The industrial products group includes mining products,
industrial raw materials of all kinds, and finished manufactured goods.
Unfortunately, the section of the 1955 rate schedule con-
taining the rate tables is not available for analysis, and thus
critical comparisons and analyses of the rate changes cannot be made.
Certain changes, however, appear to be fairly clear. For example,
the new rates appear to be designed to penalize what the Communists
call "irrational shipments." In order to divert very short-haul
traffic from the railroads to trucks and native transport, the rates
for short hauls were raised, and a similar increase in rates was
established where rail service paralleled water shipping routes. A
significant change in the pattern shown in Figure 1** was made when
it was recognized that it was not necessarily economical for the
state to encourage long hauls without limit. The new schedule provides
?
* Agricultural products, animals and animal byproducts, marine prod-
ucts, wood products, food products, mineral and pottery products (in-
cluding petroleum), metal products, textile products, leather and fur
products, lumber products, stationery (including raw material for
paper), chemical products, and other industrial products (including a
wide variety of luxury goods and household necessities as clothing and
bedding).
** Following p. 12, above.
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for an increase in the rates per ton-kilometer for some commodities
beyond a distance considered to be optimum.
The revised schedule of rates published in 1955 reflects
the pattern' already established by the earlier rate revisions in that
it is much more detailed and complex than the one it replaced. This
pattern is in line with the patterns of developing economies through-
out the world, and this trend can be expected to continue in the
Inevitable future revisions. More significant is the great increase
in the use of freight rates as a tool for state control of the economy.
The 1955 rate schedule is much better suited to the purposes of the
Chinese Communist leaders than any of those which preceded it.
D. Rates and Profits.
All published accounts of the 455 rate revision agree that
there was no increase in railroad freight charges as a whole. Upward
and downward changes were made in rates for different products and.
different distances, but the changes presumably cancel out. In an
article published in a Soviet periodical in October 1957, more than
2 years after the 1955 revision, the Chinese Communist Minister of
Railroads wrote that in the main there had been no change in trans-
portation charges since 1950 22/ in spite of the fact that the cost of
hauling had dropped from 0.0074 yuan per ton'-kilometer in 1950 23/ to
0.00767 per ton-kilometer in 1956. 24/ In view- of these reiterated
statements that there has been no change in general freight charges, it
is justifiable to compare rates from the 1950 rate schedule with the
0.00767 yuan-per-ton-kilometer average cost of all freight for 1956.
This comparison reveals that the only freight carried at rates below
the average cost of all freight in China proper was in classes 28, 29,
and 30, for distances greater than 1,760, 1,440, and 1,140 km, re-
spectively.
In the discussion of freight classification, it was seen that
the lowest important category was 27 and that little freight moved in
the three lowest classes. Furthermore, the kinds of freight listed
In these categories, such as gravel, earth, sand, and ashes are the
kinds that normally move for short hauls only. Thus it is likely that
no significant amount of freight moved at rates below the average
cost of all freight. On the other hand, class 30 freight moving the
average length of haul of 489 km was carried at a profit of more than
23 percent per ton-kilometer above the average cost of all freight,
and class 1 freight carried the same distance earned a profit of .
nearly 2,000 percent. Furthermore, the commodities in classes 28, 29,
and 30, because of their bulk character, probably had an average cost .
per ton-kilometer far lower than that of all freight. Consequently,
it probably can safely be stated that no freight moved at rates less
than the average cost of its own carriage.
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This evidence substantiates Chinese Communist statements that
the railroads produce large annual profits. Instances of the rail-
roads operating at a loss and receiving subsidies from the government
reportedly have been eliminated entirely. Since 1950, railroad
profits have increased steadily as indicated by the following set of
index numbers, where the level of railroad profits in 1952 equals
100 25/:
Year
Index Number
1952
100.0
1953
140.2
1954
161.4
1955
171.4
1956
248.5
In 1957, railroad profits were used not only for construction of
new rail lines and rehabilitation of existing lines but also for the
development of other industries.
The sizable profit margins experienced by the railroads
during 1950-56 undoubtedly reflected, in part at least, attempts to
divert traffic from the railroads to the waterways. In spite of
relatively high railroad freight rates, the railroads attracted all
the traffic they could handle, with consequent high profits. The
Chinese Communists have also reported that the large annual profits
were the "result of an extensive movement to increase output and to
effect a regimen of economy" as well as the "result of introducing a
system of business accounting." 26/
III. Freight Rates for Water Transport.
A. History.
In the period immediately following 1949 the Chinese Com-
munists retained the same freight rates for water transport
established by' the Nationalists. After the consolidation of con-
trol by the Communists, rates were modified although mostly on a
piecemeal basis. The modifications were all downward in rate level
and toward simpler; more standardized principles and classifica-
tions. ,
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There may have been a fairly widespread coordination of rates
for water transport in 1951 as a result of the revision of the railroad
tariff in mid-1950. The only activity of this sort known sPec1fica11y4,
however, was the unification of rates in December 1951 and the estab-
lishment of 5 classes of cargo and 6 voyage distances for shipping
companies operating from Shanghai. 27/ On 1 August 1952, new regula-
tions for water transport on the Amur, Sungari, and Ussuri Rivers were
put into effect. During the latter half of 1954, there was a widespread
reorganization of rates, regulations, and cargo classifications for all
coastal transportation and all inland waterways except those of the
northeast. The provisions established in 1952 and 1954 remained in
effect until the new unified system was established on 1 January
1956. 28/ The major change since that date was the abolition of sepa-
rate rates for upstream and downstream transport on the middle and
upper reaches of the Yangtze River (Hankow and upstream) effective
1 January 1958. 29/
B. Principles of Ratemaking.
The fundamental consideration in water transport ratemaking in
Communist China is that there should be a "rational" ratio between
rates for water transport and rates for other forms of transportation.
The essence of the "rational" ratio is the assumption that since move-
ment of goods by water transport generally costs less than by the other
media, especially railroads, water rates should be lower. 30/ How much
lower than other rates is not indicated.
As in the US it is recognized in Communist China that the cost
of water transport is not always lower than that of other forms of
transport. In the region of the upper Yangtze River, for example,
where the strong current makes navigation hazardous and the use of
especially powerful vessels necessary, the Chinese admit that the cost
of river transport is higher than that on the lower reaches of the
river (144 to 258 percent higher) and exceeds the average cost of
shipment by railroad for the country as a whole. 31/
There is some similarity between the situation on the Yangtze
River and that on the Mississippi River. On the Ohio River and lower
Mississippi River the costs per ton are lower than on the upper
Mississippi River and Missouri River. Taken as a whole, the cost of
transport on the Mississippi River is more than that on the adjacent
railroads, except in the case of relatively short hauls, if maintenance
and capital investment are included in costs. a/ On the Yangtze River
as a whole, the cost of transport is higher than on railroads. IV
Even though it is frequently more expensive to ship over water routes
between two ports on the Mississippi River rather than by direct rail
service between the same points, barge freight rates are systematically
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lower than railroad freight rates. The typical differential has been
.20 percent. 34/ The Chinese Communists may be confusing motives when
they say that water freight rates should be lower than railroad freight
rates because the costs are less. They are probably not taking costs
into consideration any more than they are the lesser attractiveness of
water transport to shippers, a consideration which influences attitudes
toward water ratemaking in the US. 35/
1. Rates, Profits, and Investment.
The Chinese Communists want to have good transportation at
the lowest possible rates and thus at the lowest possible cost to the
economy, as evidenced by the many reductions in rates that have taken
place. They do not seem to be willing, however, to reduce rates to
the point that profits disappear. They seem to be motivated by the
sate principles which the Interstate Commerce Commission uses to
evaluate water freight rates in the US: (a) the effect of rates on
the movement of traffic; (b) the need, in the public interest, of
adequate and efficient transport service at the lowest cost consistent
with such service; and (c) the need for revenues sufficient to enable
carriers, under honest, economical, and efficient management, to
provide such service. 36/
Because water transport costs are higher than railroad
costs in Communist China, water transport charges have been reduced to
the maximum extent possible in order to preserve the so-called "rational
ratio." -Water transport charges, however, still provide for some
minimum profit margin. Railroad rates, on the other hand, have been
set at a relatively high level, and profits consequently have been
high. 37/ Whether or not there are established criteria for determining
the minimum profit margin for water transport or the difference between
railroad and water freight rates cannot be determined.
Freight rates in Communist China are expected to be set at
such a level that they will provide capital. for construction and
expansion of facilities. 38/ Whether or not the Chinese adhere to a
strict program of making investment in each form of transportation on
the basis of the profit from that form of transportation alone is
unknown. If, however, profits from water transport must pay for all
construction and expansion of water transport facilities and if the
profit margin has been reduced to a minimum, there may be more than
coincidence in the reported failure to meet capital construction plans
for water transport under the First Five Year Plan. 39/
2. Rates for Bulk Cargoes.
One of the primary reasons for maintaining lower rates for
water transport than for other forms of transportation is to divert the
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movement of bulk cargoes from railroads to waterways, 40/ particularly
where water and railroad routes are parallel. Areas where this latter
condition exists are: (a) the coastal region, (b) sections of the
Yangtze River system downstream from Hankow (Han-klou) and upstream
from Chungking (Chung-ch'ing), (c) sections of the Pearl River (Chu
Chiang) system, and (d) sections of the Sungari River. Another reason
for the use of rate differentials to encourage the use of water trans-
port for bulk cargoes is the adequate capacity of available water'
transport. Although it is desirable to fix low rates so that empty
ships are used, 41/ the government has issued a specific warning
against establishing rates which will encourage the use of water
transport to the extent that it is overburdened.
3. Interprovincial and Intraprovincial Rates.
' The division of ratemaking responsibilities among the
Ministry of Communications and local transportation bureaus apparently
.has led to striking differences in rates) for a complaint has been
made that there should also be a "rational" ratio betwe-en central
government and local transportation prices. At present, local trans-
portation prices are 20 to 100 Percent higher than those of state-
operated enterprises. In intraprovinicial transportation in provinces
along the Yangtze River; rates are 70 to 180 percent higher than on
the Yangtze River. Some local companies which operate on the Yangtze
River as well as on its tributaries suffer losses on transportation
along the Yangtze River because of the low rates which apply. An
adjustment of rates for short distances on the Yangtze River has been
recommended as a means of bringing profits to local companies. 41/
4. Reduction of Rates with Distance.
Some Chinese Communist commentators say that, in estab-.
lishing freight rates) attention is supposed to be given to "progres-
sive reduction of freight for longer distance" and "progressive increase
of freight for longer distance." 44/ This seems to mean only that
freight rates per ton-kilometer sE3Uld be reduced progressively with
distance to encourage long-distance movement up to some arbitrarily
designated optimum distance and then be increased for distances beyond
the top optimum to discourage shipments. It has been emphasized,
however, that even after the reform of freight rates in 1956, this
principle was not put into practice for many kinds of goods.
C. Rate Structure, 1956.
Rates for water transport in Communist China are established
by the Ministry of Communications with the approval of the State
Administrative Council and apply to seagoing and river steamships and
wooden vessels operating along the coast; major inland waterway systems
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crossing provincial boundaries such as the Yangtze, Pearl, and Amur
Rivers; or other-routes designated by the Ministry of Communications.
Presumably, these rates apply only to the main course of the rivers
or to companies engaged in interprovincial transportation. Rates for
intraprovincial water transport are established by the provincial
transportation bureaus or other transportation bureaus of equal rank,
approved by the provihcial peoples committee, and registered with the
Ministry of Communications. 122/
1. Classification.
Communist China has divided all commodities-transported
by water into classes and determined freight rates for each group. The
1956 rate schedule contains 25 classes; the rate for class 1 freight
is the highest, and for class 25, the lowest. 46/ Commodities of heavy
density and low value are in the lower classes.
The freight rates are further classified as follows:
(a) ordinary rates applicable to general cargoes; (b) special rates
applicable to certain cargoes, voyages, seasons, or transportation
regions; (c) rates for relay transportation (river-ocean, river-canal,
or water-rail); and (d) rates for through traffic applicable to
through transportation by river, ocean, or canal. ill/ A cargo entitled
to both special and through rates is charged the lower of the two.
Analysis of the commodity groups in the 25 classes covered
by the 1956 rate schedule for water transport shows a close correlation
between the groups and their suitability for shipment by water and
their usefulness to the buildup of the Chinese Communist industrial
economy. Commodities included within the lower classes are industrial
raw materials (coal, ores, salt, cotton, timber, and petroleum) which
are well suited to transport in bulk by water carriers. The middle
classes contain a great range of manufactured commodities; daily necessi-
ties; and certain raw materials such as fresh hides, hog hair and
feathere for fertilizer, soft drinks, tobacco, household furniture,
basic industrial chemicals, and manufactured goods. Thebe items are of
higher value and lower,bulk and are not so well suited to shipment by
water. The top classes include fragile, dangerous, or very expensive
goods: glassware, carved wooden articles, explosives, toilet articles,
cameras, currency, birds' nests, fish lips, and precious metals. Lly
Although there are fewer clasaes of freight in the water
transport rate structure than in the railroad rate structure, the former
is more complex. Separate tariffs are given for the north coast and the
south coast (with several variations for the north coast) and for each
waterway system (with sections applicable to various parts of each
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system and/or various seasons of the year and water levels). There is
also a complex of special rates for certain routes, commodities, and
seasons.
The example of inland waterway transport will suffice, with
but minor modifications, to illustrate the basic class structure for
water transport. Commodities in the three lowest classes alone account
for about 6o percent of all inland water traffic. In Table 5 the
commodities and commodity groups are arranged in descending order of
their proportion of total inland water ton-kilometer performance in
1956 with the classifications that apply to each commodity or group.
Table 5
Classification of Principal Commodity Groups Carried
on the Inland Water Transport System of Communist China 2/
1956
Commodity or Group
Class
Grain
Coal
22,
25
23
Mineral construction materials
20,
23,
24,
25
Timber
20
Ores and ferrous metals
25,
21
Salt
23,
25
Cotton
20
Petroleum and petroleum products
12,
14,
15,
16
In coastal shipping, coal and ores comprise a larger per-
centage of the total cargo than in inland shipping. Rates for petroleum
carried in bulk along the coast are given in a special tariff which does
not recognize the same classes that apply to inland shipping. 22/
Presumably, the rate charged for petroleum transported in barrels along
the coast is the same rate as on the inland waterways.
Further analysis of water freight rates is shown in
Figure 2* which compares graphically the rates per ton-kilometer of
classes 1, 12, and 25 for transportation between the major ports on
the north coast (Dairen, Chin-huang-tao, Tientsin, Shanghai, Tsingtao,
and Chef 00), ports along the south coast, and on the lower Yangtze
* Following p. 24.
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River (Shanghai to Rankow). 51/ Other inland waterways or other
sections of the Yangtze River are not shown because of the great com-
plexity of the rate structure and shortness of routes.
Figure 2 shows that the rate for south coast shipping is
consistently higher than that for the north coast. At a distance of
100 km the rates for the south coast are 57 percent higher, and at
1,500 km, 87 percent higher.
Also, the rate for shipping between the major north coast
ports differs from that between secondary parts in the same area. The
1956 rate schedule contains a separate tariff applicable to this
situation. 22/ The rates for freight shipments between secondary
ports are applicable to shipping between major ports and the secondary
ports. 53/ The rates in this tariff vary from 5 percent higher than
the rate for the main ports at 100 km to 24 percent higher at 1,500 km.*
No separate tariff is included for secondary ports on the south coast.
The Chinese Communists apparently do not recognize the division into
major and secondary ports for purposes of ratemaking on the south coast
although they do for other purposes.
2. Distance.
As distance increases, the rate per ton-kilometer appears
to decrease consistently for all water transport, as exemplified by the
samples shown in F4ure 2.** The amount of decrease varies with the
area. For north/Coast shipping the rate at 500 km is only 30 percent
?of the rate at 100 km; at 1,000 km, about 22 percent; and at 1,500 km,
about 18 percent. For south coast shipping the rate at 500 km is about
33 percent of that at 100 km; at 1,000 km, 25 percent; and at 1,500 km,
21 percent. On the lower Yangtze River the rate at 500 km is only
about 94 percent of the rate at 100 km; and at 1,000 km, 85 percent.
No voyage on the lower Yangtze River extends to a distance of 1,500 km.
Although some commentators have pointed out that rates
should vary upward after an optimum diStance is passed, there is no
indication that this factor was used in establishing the 1956 rates.
Either the. factor was not taken into consideration, or the distances
in water transport are'not considered to extend beyond an optimum
distance.
* The rates in this tariff are doubled for shipments on routes
operated by chartered foreign-flag vessels, 54/ thus making them the
highest found anywhere on the coast. These rates may reflect dangers
inherent in voyages in waters subject toldhinese Nationalist patrol,
such as in the area of the Taiwan Strait.
** Following p. 24.
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Yuan Per Ton?
Figure 50X1
COMMUNIST CHINA
COMPARISON OF WATERWAY FREIGHT RATES
FOR COMMODITIES IN CLASSES 1, 12, AND 25, 1956
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3. Exceptions and Special Rates.
In-order to encourage the use of water transport, special
rates have been established. As early as 1952, preferential rates
were established for daily necessities and industrial raw materials --
rates which in some cases were lower than-the actual transportation
costs. 22/ Examination of the rate schedule for water transport which
went- into effect on 1 January 1956 reveals that rates lower than the
ordinary rates are given to the same general commodities that had
been specified in 1952. Cargoes for agricultural use, such as ferti-
lizers and certain local specialties, also figure prominently. On the
other hand, some commodities which are included within the special rate
groupS bear rates which are higher than the ordinary rates in order to
discourage shipment by water. Examples of commodities in this category
are: cigarette paper; bark of softwood trees on the Yangtze River;
cement and limestone in bulk; coal transported between Hsin-k'ang (New
Harbor), Chin-huang-tao, and Lungkow (Lung-icon), and between Hsip-
k'ang, Chin-huang-tao, and Wel-hal (Wei-hai-wei) on the coast. 56/
IV. Freight Rates for Highway Transport.
Although highway transport in Communist China has improved con-
siderably in recent years, it remains the least developed form of
modern surface transportation in the country. As a result of such
factors as high fuel costs, the relatively small capacity.of motor
trucks, an inadequate highway system, and, until recently, the lack
of domestic manufacturing facilities for all types of motor vehicles,
highway traffic has been of little economic significance except for
short-distance, intercity freight movements and in providing feeder '
service for railroads and waterways.
A. Rate Structure.
Freight rates* for motor trucks and native land transport in
Communist China are established by the-local authorities, both pro-
vincial and municipal. 57/ Scattered evidence indicates, however,
that some truck rates, etpecially for interprovincial routes, may be
governed by the Ministry of Communications. Even though it is
doubtful that a unified, nationwide, rate scale is in effect for
highway transport, it can be assumed that the central government does
not hesitate to provide guidance to the local authorities in their
ratemaking functions.
* A comprehensive volume of highway freight rates similar
on railroad-and water transport rates quoted previously in
is not available at the present time: Consequently, the c
reached in this section have been based almost entirely on
and incomplete references.
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to the ones
this study
onclusions
scattered
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1. Classification.
Communist China apparently uses a simplified system of class
rates for highway transport. Considerably fewer classes have been set
up than for either rail or water transport. In Szechwan Province in
mid-1952, for example, all commodities were divided into 3 classes for
both full-truckload (Fm) and less-than-carload-lot (LCL) freight
shipments. 58/ The 1953 freight rate schedule for the Shansi Transport
Company contained 5 classes for both FIL and LCL shipments. 59/ In
Yunnan Province in 1955, there may have been as many as 6 classes of
freight because on 1 March 1955 the Yunnan Transportation Office
announced that beginning immediately highway freight rates for 523
items in 6 categories were to be reduced 20 percent. 60/ Freight -
rates which went into effect in Yunnan on 1 January 1956 applied to
5 classes of commodities for both FIL and LCL shipments. Freight
moving on interprovincial routes between Yunnan and adjacent provinces
also was divided into 5 classes. 61/ In Sinkiang Uighur Autonomous
Region in mid-19560 all goods were divided into 5 categories, and rates
were charged according to the category in which a particular item had
been placed. Industrial equipment, farming implements, and "gOods
for daily needs" were accorded preferential rates, however, whereas
alcoholic beverages; tobacco, and other unessential goods were charged
rates slightly above the regular ones. 62/
2. Exceptions.
In all the examples cited above, the highest rate was charged
for first-class freight and the lowest rate for third-class or fifth-
class freight. Scattered evidence also suggests that road quality,
as well as class of goods, may influence rates. In Yunnan Province
in 1956, for example, a surcharge for transportation on bad roads had
to be paid in accord with the relevant regulations in effect at the
time. 63/ Even on good roads, terrain has an effect on rates. Charges
for trips which are chiefly uphill generally are higher than for those in
the opposite direction. 64/ Beginning in the latter part of 1952 on
various routes in the northwest where goods moved mainly in one
direction, different rates were charged depending on the direction.
At that time the same rates applied to all classes of freight,
although there was a surcharge of 20 percent on all goods classified as
hazardous. In cases where there was no assurance of a return load,
the shipper and the carrier could negotiate and reach an agreement
as to the freight rate, but 70 percent above the one-way charge was
the maximum amount which the carrier could receive. On all lines in
Sinkiang, however, the surcharge for a one-way load was not to exceed
30 percent of the scheduled rate. If the shipper and the carrier
entered into a contract covering large-scale shipments and the terms of
the contract were reported to and approvedgby the Transportation Com-
mittee in the area concerned, the regular freight rates did not apply. 65/
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3. Distance.
The principle of a decreasing rate per ton-kilometer as the
distance increases does not appear to apply to highway transport rates.
Most of the examples available indicate that highway ton-kilometer rates
remain constant on particular routes without regard to distance. The
only example to the Contrary is a rate schedule published for Sinkiang
which went into effect on 1 September 1955. This schedule applied
only to distances of 101 km and more. Separate schedules were to be
published for distances of 100 km and less. ??/
B. Highway Freight Rates in Yunnan Province, 1956.
The freight rates for transport by motor trucks on the high-
ways of Yunnan, contained in Table 6,* went into effect on 1 January
1956, according to an announcement by the Communications Department of
Yunnan Province. 67/ The table illustrates some of the principles
mentioned previously, in addition to indicating the general level of
highway freight rates in existence in 1956 and the relationship between
the different classes of freight, types of shipments, and types of
vehicles used.
Instructions accompanying the rates in Table 6 indicated that
they were to be enforced uniformly by the provincial transport bureau
and that no departure from the publiehed rates was to be made by any
motor truck operator in the province. If any truck were obliged to
run empty on an outward or homeward run, the rate to be charged for the
empty run was to be half the applicable rate for third-class freight.
This regulation, however, did not apply to interprovincial motor
highway traffic. Charges for transportation on internrovincial high-
ways were generally to be determined by the proVince in which the
transportation took place.
Table 6 is probably indicative of the type of rate schedule
set up by the various provinces for highway transport. In the case of
Interprovincial rates, conferences between the Communications Depart-
ments of the different provinces undoubtedly take place during the
ratemaking process. The role of the Ministry of Communications in the
ratemaking process is not clear, but the Ministry undoubtedly offers
considerable direction and probably arbitrates disputes which the
provinces are unable to settle among themselves.
It should be noted that in Table 6 rates for fifth-class
commodities are the lowest rates quoted. On internal routes, fifth-
class rates vary from 74 to 79 percent of first-class rates. Other
evidence indicates that on interprovincial routes fifth-class rates
* Table 6 follows on p. 28.
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Table 6
Freight Rates for Highway Transport on Internal Routes
In Yunnan Province a/
1956
Yuan Per Unit Shown
Classification ?
Unit
Trucks,
Burning Liquid Fuel
Trucks
Burning Solid Fuel
First Class
.biLbi
Ton-kilometer
0.2754
0.2700
Chartered truck
Ton-kilometer
0.1918
.LCL 21
Kilogram-kilometer
0.00029
0.00029
Second Class
bit
Ton-kilometer
(:)2595
0.2489
Chartered truck
Ton-kilometer
0.1758
LCL
Kilogram-kilometer
0.00027
0.00027
. Third Class
Ton-kilometer
0.2435
0.2277
Chartered truck
Ton-kilometer
0.1598
LCL
Kilogram-kilometer
0.00026
0.00025
Fourth Class
FTL
Ton-kilometer
0.2284
0.2190
LCL
Kilogram-kilometer
.0.00024
0.00024
Fifth Class
FTL
Ton-kilotheter
0.2143
0.2004
LCL
Kilogram-kilometer
0.00023
0.00022
a. Lid/
b. Full truckload shipments.
c. Less-than-carload-lot shipments.
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vary from 74 to nearly 82 percent of first-class rates. *Within each
class, rates for trucks burning solid fuel are less than rates for,
trucks burning liquid fuel except in the case of some LCL shipments
where the rates are identical. Lower rates for shipments in trucks
burning solid fuel probably reflect in part lower costs of operation
but also may reflect the slower speeds of these trucks and the
consequent longer periods of time for shipments to reach their desti-
nations. Then, too, these rates may have been set at a lower level in
order to attract as much traffic as possible and thus promote savings '
of scarce liquid fuel.
The rates for chartered trucks appear to be unduly low when
compared with rates on FTL shipments. However, in addition to paying
the flat rate indicated per ton-kilometer, the user of a chartered
truck burning liquid fuel also pays for the fuel consumed on the
basis of one liter of liquid fuel per 11.52 tkm of loaded distance and
75 percent of this rate for the empty distance. ?.2/ Trucks burning
solid fuel apparently are not used on a charter basis, because no
rates for them appear in the rate schedule.
C. Rate Level.
The highway freight rates appearing in Table 6 probably are
fairly representative of the general level of such rates throughout
Communist China) at least in the interior proVinces. One pbssible
exception may be Tibet, where, because of the mountainous terrain and
poor roads, the rates are believed to be more than double those of
Yunnan. Other scattered evidence indicates that highway rates in
general have decreased considerably in recent years, perhaps by 20 to
30 percent between 1952 and 1956 for the country as a whole. 222/
Decreases in rates in some.. of the provinces give an indica-
tion of the magnitude of the changes which have taken place. In
Anhwei Province, statistics for 1956 show that rates charged for
highway transport were 35.53 percent lower than in 1952. 11/ In
Fukien Province the twelfth reduction of highway transport rates took
place in January 1955. 12/ During 1950-56, there were several .
readjustments and reductions of rates in Kiangsi Province, so that
by 1956 freight rates for trucks burning liquid fuel were 46.2 per-
cent lower than the rates charged in 1951. 11/ On 1 August 1954,
highway freight rates in Kwangtung Province were reduced for the
_7./
fifth time since 19 7449. A further reduction of 17.6 percent took
place on 1 July 1956. 75 In Shansi Province, freight charges in
1954 reportedly were 29.2 percent lower than in 1951. 76/ In Sinkiang
Uighur Autonomous Region, highway freight rates were reduced by an
average. of 7.48 percent as of 1 June 1956. 11/ It was also reported
that rates charged in 1957 averaged 21.1 percent below those of 1952
and 59.7 percent below those of 1950. 78/
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D. Rates and Costs.
In spite of the *ate reductions which took place during 1950-57,
highway transport in Communist China still is considerably more expen-
sive for the shipper than either rail or water transport. One authority
has estimated that transportation by motor truck is about 30 times as
expensive as rail transport and that in certain areas the differential
is even larger. He believes that this ratio is roughly equal to that of
the prewar period and that it serves to emphasize the poor competitive
position of highway transport and its limited uiefulness. 79/
a considerable differential between
railroad and highway costs, but not of the magnitude quoted above.
After the Lung-Rai rail line was extended to Lan-chou in 1952, for
example, the cost of shipping salt from Lan-chou to T'ien-shui dropped
from 76.3 yuan per ton by truck to 15.3 yuan per. ton by rail! 80/ On
that route, truck transport was only five times as expensive as rail.
After the railroad was extended to Yu-men in 1956, fresh fruits and
vegetables reached Yu-men from Lan-chou by rail freight at one-eighth
the previous cost by truck. After the Pao-chi - Ch'eng-tu rail line
was opened for temporary service in 1956, the charge for shipping a
carload of cotton textiles from Feng-hsien in Shensi Province to Mang-
tang in Kansu Province !ripped from 500 yuan by motor truck to less
yuan than 100 an by rail..81 In Fukien Province, considerable savings
resulted Prem.-the opening of the Ying-t'an - Amoy Railroad. The
following tabulation contains figures for the comparative cost of trans-
port from Nan-ping in Fukien to Shanghai in Kiangsu for several kinds
of agricultural products before and after the building of the rail line
as far as Nan-ping 82/:
Rego of
Cost Before J5cpected Regular Former Cost
Railroad Was Built Railroad Cost. to Expected
Product (Yuan per Metric Ton) (Yuan per Metric Ton) Cost
Mine timber
80.49
9.80
8.2
Live hogs
98.93
32.80
3.0
Tea leaves
108.62
44.78
2.4
Coarse
paper
92.58
27.44
3.4
Bamboo poles
92.03
26.84
3.4
The next tabulation contains figures for the comparative cost of trans-
port in the opposite direction, from Shanghai to Foochow, for several
kinds of industrial products, before and after the construction of the
rail line as far as Nan-p'ing 83/:
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Ratio of
Cost Before Expected Regular Former Cost
Railroad Was Built Railroad Cost to Expected
Product (Yuan per Metric Ton) (Yuan per Metric Ton) Cbst
Steel rods
97.35
28.05.
3.5
Cement
92.38
23.08
4.0
Fertilizers
93.79
20.52
4.6
Cotton cloth
124.50
58.08
2.1
Although the type of transportation and the route used before the rail-
road was built are both uncertain, it can be assumed that use of motor
trucks predominated. If this is the case, motor truck transport was
from 2 to 8 times as expensive as rail transport in that area in 1956.
The same relationship existed in 1957, when the unit cost of transport
by rail was reported as 30 to 50 percent less than that by motor truck,
particularly for heavy and bulky freight. QI:LI In Honan Province in the
summer of. 1957, prospective construction of a 43-km branch rail line
from the Peking -- Han-k'ou line to the Hsin-mi coal mine was expected
to reduce the cost of shipping the output of the mine to the main rail
line from 19 yuan per ton. by truck to 2 yuan per ton. 85/ In this
location for a relatively short haul, motor truck transport was nearly
10 times as expensive as rail transport, at least for the movement of a
bulk commodity like coal.
From the various examples cited above, it appears that motor
truck transport is from 2 to 10 times as expensive as rail transport,
depending on the type of commodity hauled, the length of haul, and the
location or terrain. For extremely long hauls, however, the cost of
transportation by truck may approach the figure of 30 times that for
rail transport quoted previously. Extension of new rail lines into
western. sections of the country undoubtedly has released many hundreds
of trucks for shorter haul operations on other roads of the highway
network and probably has been a factor in reducing the over-all clist
differential between the two types of transport. This hypothesis is
substantiated in part at least by the reduction in the average length
of haul by motor truck transport from 44 km in 1956 f4/ to 36 km in
1957. PI/
Although in many instances the charges paid by the shipper for
motor truck transport or rail transport represent fairly accurately
the cost differential existing between the two modes of transportation
In a given situatiOn, this is not always the case. One Chinese Com-
munist writer has pointed out, for example, that a rational price ratio
between rail and motor truck transport must be maintained. 88/ The cost
of short-distance transportation by rail in Communist China is higher
than the over-all average cost of rail transport and is considerably
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higher than the cost of short-distance motor truck transport. f12/
Thus the use of railroads instead of motor trucks for relatively snort
hauls is not economic. Although the 1955 revision of railroad freight
rates resulted in certait adjustments for short hauls, the problem
was by no means completely solved. In 1956, for example, the rate for
transporting such goods as coal, iron ore, bricks and tile, cement,
and lumber by rail for 20 km was 25 to 30.percent less than the rate
for transporting these commodities by motor truck in spite of the cost
differential favoring motor transport. Thus short-distance railroad
rates needed further readjustment if the use of motor trucks for short-
distance transportation was, to be promoted. 90/
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