CHINA S TRANSPORT NEEDS IN THE 1980S

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• Collection: General CIA Records
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• Release Decision: RIPPUB
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• Document Creation Date: December 21, 2016
• Document Release Date: January 11, 2008
• Sequence Number: 3
• Publication Date: October 1, 1983
• Content Type: REPORT

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Directorate of Confidential
Intelligence
China's Transport Needs
in the 1980s
Confidential
EA 83-10183
October 1983
Copy 2 7 2
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China's Transport Needs
Intelligence
in the 1980s
This paper was prepared by
Office of East Asian Analysis. Comments and queries
are welcome and may be directed to the Chief,
China Division, OEA,
Confidential
EA 83-10183
October 1983
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China's Transport Needs
in the 1980 25X1
Key Judgments Inadequate transport facilities-especially the highway sector-will con-
Information available tinue to place limits on China's economic growth over the next decade or
as of 15 August 1983 more. Beijing has selected transport for special emphasis during the Sixth
was used in this report.
Five-Year Plan and some benefits will show up by the mid-1980s, but
targets and investment are quite modest for a sector that historically has
been plagued by bottlenecks. Of the many problems affecting China's
transport systems, the continuing inability to clear the ports because of an
inadequate inland distribution system is the most formidable, and it will re-
tard foreign trade for much of the decade.
China's railroads, carrying 65 percent of domestic freight, now barely keep
pace with domestic demand. Over the coming decade China plans to
improve significantly the flow of coal on the railroads, especially in north
China, but we believe that growing foreign trade and increases in domestic
coal production will rapidly overtake new transport capacity.
In the 1980s China will also seek to alleviate the congestion in its ports by
expanding specialized handling capabilities for coal, timber, and contain-
ers. In our view, however, Beijing's plans are inadequate, especially
because too little attention is being paid to transportation networks serving
the ports. The key shortfall lies in the continued failure to expand the
highway sector in order to free the rail system from the inefficient and ca-
pacity-constraining short-haul movement of goods. Nongovernment truck-
ing services now being encouraged by the Chinese will not be able to
expand rapidly because of a shortage of equipment. Moreover, China's
slow start at improving grain- and timber-handling facilities will slow the
growth of these imports from the United States-as well as from other
suppliers-for a number of years.
Over the next decade China will also focus on upgrading its civil air fleet to
handle a growing number of foreign tourists. In this sector, we believe
Beijing is prepared to allocate the substantial funds that will be necessary
to bring operations up to levels approaching those of Western airlines.
Confidential
Confidential
EA 83-10183
October 1983
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These investment priorities, which are largely aimed at increasing China's
foreign exchange earnings, will produce a number of opportunities for US
businesses. The Chinese are now in the market for locomotives, trucks, civil
aircraft, specialized equipment (such as log and container handlers), and
even everyday items such as railway ties. Beijing tends to favor companies
offering manufacturing technology for products which can be sold on the
international market. Foreign firms willing to accept at least partial
payment in Chinese goods should also fare well.
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Key Judgments
Railways
Highways
Relieving Pressure on the Rails
6
Agricultural and Timber Movements
7
Supporting the Tourist Industry
7
Foreign Trade Drives Maritime Expansion
8
Changing Support for Industry
9
Alternative Transport Development Encouraged
9
Prospects for the 1980s
11
The Role of Foreign Assistance
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Table 1
China: Domestic Freight Turnover
Billion metric ton-kilometers
(except where noted)
Total
Share
of Total
(percent)
Total
Share
of Total
(percent)
Total
Share
of Total
(percent)
Total
Share
of Total
(percent)
Total
Share
of Total
(percent)
Total
NA
NA
821.02
100.0
849.64
100.0
852.07
100.0
921.50
100.0
Railways
534.5
NA
559.80
68.2
571.70
67.3
571.20
67.0
612.00
66.4
Waterways a
129.2
NA
139.00
16.9
152.30
17.9
152.80
17.9
164.30
17.8
Highways b
NA
NA
74.50
9.1
76.40
9.0
78.00
9.2
94.90
10.3
Aviation c
0.1
NA
0.12
NEGL
0.14
NEGL
0.17
NEGL
0.20
NEGL
Pipelines
43.0
NA
47.60
5.8
49.10
5.8
49.90
5.9
50.10
5.4
a Excluding oceangoing freight.
b Freight carried by vehicles in all sectors of the economy.
c Includes international air freight.
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China's Transport Needs
in the 1980s
Unbalanced Transportation System
China's transport systems now barely meet demand.
In 1982, the railroads carried 66 percent of domestic
freight (table 1), but, nationwide, the utilization of
railroads is near saturation. In some areas it already
lags far behind needs. Water transport is the second-
largest carrier, handling 18 percent of volume. Here,
the need for continuous dredging and for port and
inland fleet modernization makes expansion costly.
China has only a limited number of highway routes-
mostly poor quality-and road traffic, although rising
slightly in 1982, still only accounted for 10 percent of
freight turnover. Because of the recent slowdown in
oil production, the pipeline sector, handling 5 percent
of turnover, probably is the only sector not already
pushed to capacity. The air sector still is in its
infancy, although Beijing in recent years has made
sizable investments in new Western aircraft and in
airport and cargo-handling facilities.
Railways. Annual railroad traffic density in China
has already reached almost 12 million metric ton-
km/km (ton-kilometers of freight per route km),
second in the world only to the Soviet Union. Rail
traffic is heaviest in the eastern and northeastern
parts of the country where most of China's industry is
concentrated. The volume of freight in these regions
accounts for more than 85 percent of the total volume
transported by all the country's rail lines. The eastern
lines are bumping up against capacity; some cannot
meet present needs. Coal, the highest single-volume
commodity shipped by rail, accounts for nearly 40
percent of rail volume and as much as 60 percent of
the volume hauled on some lines. Much of the rail net
is still single track, although construction of double
track systems is becoming more widespread (see map).
Key rail lines, mainly high-density lines involved with
coal shipments, are being electrified.
Waterways. The water transport system, historically
important in China, suffers from a lack of specialized
cargo facilities, wharves, deepwater berths, storage
areas, and mechanized equipment. Rapid expansion
of the maritime fleet and the rapid growth of foreign
trade, especially since 1977, have also contributed to
the congestion problem, which has been made worse
by an inadequate inland distribution system. Railroad
and highway service to port areas has not expanded as
rapidly as port-handling capacity; as a result, cargo
accumulates on the docks forcing a delay in discharg-
ing ship cargoes
On the inland waterways, larger ships and barges,
new navigational and signal equipment, and increased
dredging operations all have contributed to improved
carrying capacity. Some of this increased capacity,
however, has been offset by the shrinking waterway
network. The uncoordinated construction of new
dams-irrigation, hydroelectric, flood control-has
blocked shipping channels, resulting in the loss of
thousands of kilometers of navigable water routes
Highways. Calculated on the basis of total land area,
China's highway density is very low: China ranks 51st 25X1
in the world. The heaviest concentration of the princi-
pal highway net is in the industrialized east. Because
the development and operation of the highway sector
remains largely in the hands of provincial organiza-
tions, there are few direct routes between provinces
and there is no coordinated national highway system.
Most roads have hard earth or gravel surfaces; few
have asphalt surfaces. Highway systems have a small
motor vehicle density; the majority of traffic consists
of slow-moving rubber-tired farm vehicles and trailers
and carts and bicycles, all of which impede truck
traffic and cause congestion. Many of the motor
vehicles on the road are old, have a low carrying
capacity, and use excessive amounts of fuel. Except in
western China, roads are still used mostly for short-
haul freight or as feeders to the other transport 25X1
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Aviation. By contrast, China's civil air sector has
displayed phenomenal growth since the early 1970s.
Purchases of long-range jet aircraft and the signing of
a number of air agreements have more than quadru-
pled the distance of China's routes, both domestic and
international, since 1970. At the same time, selected
air terminals and runways have been expanded to
handle both larger aircraft and an influx of foreign
visitors. Still, foreign travelers frequently encounter
flights that are canceled because of too few passengers
or, at the other extreme, crowded flights with passen-
gers occupying makeshift seats. Darkness and bad
weather also produce unscheduled stopovers because
the aviation network lacks radar and other naviga-
tional aids.
Pipelines. The pipeline sector, a fairly recent addition
to China's transport network, has helped lift some of
the burden from other transport sectors. Prior to the
completion of a number of pipelines in the mid-1970s,
pipelines were not used to carry crude oil from
oilfields to refineries or to coastal ports. But by 1982,
pipelines were moving about 80 percent of all crude
oil production. As a result of this switch, space on the
railroads was freed for other commodities
Investment Plans
Beijing has selected transport for special emphasis in
its investment plans during the Sixth Five-Year Plan
(1981-85). Premier Zhao Ziyang, in addressing the
Sixth National People's Congress this past June,
reaffirmed energy and transport as priority sectors in
China's development plans. He stressed the need to
invest in projects that will:
? Increase coal-carrying capacity of old rail lines.
? Increase capacity of harbors, inland waterways,
highways, and air transport to meet the needs of
domestic economic development and foreign trade.
? Support light industrial growth.
Zhao's statements underscore the leadership's grow-
ing recognition that just as energy shortages hamper
efforts to revitalize the economy-transport bottle-
necks and outmoded, high-cost rail systems make
development plans that much more difficult to carry
out
By 1985, the Chinese plan to have invested 27.5
billion yuan, or about $14.2 billion (at 1.9 yuan per
dollar), in the transport sector-mainly for railway
and harbor construction (table 2). Since the Fourth
Five-Year Plan, investment in transport, ports, and
telecommunications has changed very little, averaging
30 billion yuan each plan period. However, as tables 2
and 3 show, as a share of total investment between the
Fourth and Fifth Five-Year Plan it decreased sharply
(18.9 to 13.5 percent), but now is being held at 13
percent for the Sixth Five-Year Plan. Some funding,
probably less than 5 percent, will come from foreign
sources. Close to $125 million in World Bank funds
are earmarked for development of specialized cargo
facilities at three ports. Japan is assisting in the
construction of coal-related rail and port facilities in
north China largely because of its importing of Chi-
nese coal.
These investment efforts will produce some benefits
by the mid-1980s, as progress is made toward increas-
ing capacity on heavy-volume rail lines in the densely
populated, industrialized east. The last push on rail
development was on low-volume western lines in the
early 1970s when, between 1971 and 1975, rails
received 17.3 billion yuan, 10.3 percent of total
investment. In the 1976-80 period, when China
switched its attention to upgrading the eastern lines,
investment in rails was reduced to 14 million yuan
(6.3 percent of total investment). This reduced invest-
ment was probably justified by the belief that it would
cost less to upgrade old lines than it would to.continue
building the more difficult western lines. The latest
five-year plan raises investment back to the 1971-75
level while calling for an 88-billion-ton increase in
freight turnover.
Investment spending in 1981, however, was not as
large as we expected, based on the five-year plan
goals. Only 1.4 billion of the 17.3 billion yuan planned
for rail construction was used. This could be explained
in part by the reduction in total investment. Still, the
share of total investment going to rails fell from 5.6
percent in 1980 to 3.4 percent in 1981. We do not
know whether this reduction was entirely deliberate,
caused by construction delays, or was for other rea-
sons.
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Table 2
China: Capital Investment in Transportation
Total Share of
(million yuan) Total (percent)
Total
(million yuan)
Share of
Total (percent)
Total
(million yuan)
Share of
Total (percent)
Total investment
53,939
100.0
42,789
100.0
230,000
100.0
Of which:
Transport, posts, and
telecommunications
6,234
11.6
4,047
9.5
29,830
13.0
Transportation
5,850
10.8
3,627
8.5
27,480
12.0
Railways
3,044
5.6
1,445
3.4
17,290
7.5
Waterways
1,391
2.6
1,295
3.0
NA
NA
Highways
1,086
2.0
799
1.9
NA
NA
Aviation
275
0.5
70
0.2
580
0.3
Pipelines
54
0.1
18
NEGL
NA
NA
Table 3
China: Investment in Railroads and Addition of New Capacity
Total
Of which:
Of which:
New Railroad
New Railroad
Investment
Transport, Posts, and
Railroads
Capacity a
Capacity as a
(million yuan)
Telecommunications
(billion metric
ton-kilometers)
Share of
Yuan Invested
Total
Share of
Total
Share of
(metric ton-
(million
yuan)
Total
(percent).
(million
yuan)
Total
(percent)
kilometers)
Third Five-Year
91,471
15,001
16.4
11,250
12.3
79.8
7.09
Plan (1966-70)
Fourth Five-Year
168,037
31,759
18.9
17,308
10.3
76.0
4.39
Plan (1971-75)
Fifth Five-Year
224,275
30,245
13.5
14,047
6.3
146.1
10.4
Plan (1976-80)
Sixth Five-Year
230,000
29,830
13.0
17,290
7.5
88.3
5.11
Plan (1981-85) b
a Because the railways have always operated at near capacity, we
assume that increases in freight volume basically reflect ihcreases
in capacity.
b Plan.
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In various periods, but especially during 1976-80,
improvements in operational efficiency, such as in-
creases in average train weight, greater speed and
length of trip, and reduced turnaround rates, have
helped raise capacity. It is questionable, however,
whether further improvements in operations can yield
much additional capacity during the 1981-85 period.
With the turnaround rate increasing and average
train speed decreasing, as they were at the beginning
of the latest plan period, we believe further capacity
increases will be more dependent on investment-
because investment is also now needed to raise opera-
Table 4
China: Types of Rail Lines
tional efficiency.
Beijing recognizes that further improvements in oper-
ating efficiency require sizable investment, but ex-
pects its investment in railways to yield only moderate
additions to capacity (see table 3). As the table shows,
the ton-kilometers of new capacity yielded by each
yuan of investment has fluctuated considerably from
one five-year plan to another. During 1976-80 the
new-capacity yield per yuan invested more than dou-
bled over the previous period. This doubling can be
explained by the investment shift to high-volume
eastern lines, by the carryover effect of investment in
the previous five-year plan, and especially by in-
creased capacity of coal lines. For example, higher
volume coal tends to move longer distances than other
commodities, and as a result both train speed and
weight increase while turnaround frequency is re-
duced. Emphasis on coal hauling, therefore, raises
performance figures. The relatively high increase of
7.09 ton-kilometer per yuan for 1966-70 can be partly
explained by the recovery from the depression of the
early 1960s.
Although rail investment called for in the Sixth Five-
Year Plan might meet energy and priority foreign
trade needs during the 1980s, we strongly doubt it will
meet all domestic needs as well as allow the unfet-
tered growth of foreign trade. Increases in agricultur-
al production and changing production patterns at
commercial enterprises already are adding to China's
transport problem. Beijing apparently realizes this,
because the leadership is encouraging lower level
government units, enterprises, and even individuals to
invest their own funds in highway transport vehicles.
In one six-week period earlier this year, individual
Operational
Planned Construction
1980
2,067
NA
Double track
8,000
1,789
1,100 a
Electric
1,670
2,511
2,700
Total
49,940
6,367
NA
peasants in one city bought 350 trucks; the media
estimate that peasants could purchase 50,000 to
60,000 trucks a year if they were available.
Focus on Energy Transport
The Chinese are concentrating on improving carrying
capacity of coal. Coal currently accounts for 70
percent of commercial energy consumption, 39 per-
cent of total rail freight volume, and 30 percent of
port cargoes. And these proportions are expected to
increase; China's goal is to raise coal output from 666
million tons in 1982 to 850 million tons by 1990. The
major coalfields are in north and northeast China
where coal trains already account for more than half
of the total traffic on many lines.
In order to reduce pressure on existing rail lines and
increase capacity, the Ministry of Railways is double
tracking and/or electrifying old lines and in a few
cases building new lines. Nationwide, this decade the
Chinese plan to construct approximately 5,000 kilo-
meters of electric railways, 3,000 kilometers of double
track routes, and over 2,000 kilometers of single track
lines (table 4). Most of the major projects now under
way or embodied in the plans are for eastern China
and will greatly improve rail capacity. We believe that
with double tracking and electrification, China should
have little trouble doubling coal-hauling capacity.
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Chinese railway workers laying concrete-based track on the 310-kilometer-long
Yanzhou-Shijiusuo railway. More than 30,000 men are working on this rail line
However, until current construction is completed this
area will still be hampered by bottlenecks. If ambi-
tious plans for coal output are achieved, new bottle-
necks will appear in the latter part of the decade. F-
A large part of the effort to improve coal transport is
centered around Shanxi Province, which accounts for
one-fifth of China's total coal output. Coal traffic
reportedly makes up 80 percent of the tonnage on
Shanxi's inadequate and congested railway network.
Last year, over 27 million tons of coal were stockpiled
awaiting rail transport in the province, according to
the governor of Shanxi. The plans are that by 1985
Shanxi's railroads will be able to move 120 million
tons of coal per year-50 percent more than in 1980.
With nearly all of Shanxi's rail lines now being
upgraded, we believe Shanxi will be able to handle
this volume of coal.
The Chinese also are developing an export coal base
in southern Shandong Province. Here, a new single
track rail line is being laid between the Yanzhou coal-
mining area and the coastal city of Shijiusuo where a
new deepwater coal port is being constructed-both
with Japanese assistance. This will become the only
coal export facility connected to a major mining area
by a railway dedicated to coal transport. The rail line
is scheduled for completion in 1985 along with the
first phase of the port-one 100,000- and one 25,000-
deadweight-ton berth.
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There are also plans to export coal from western
Guizhou Province through south China ports. The
Chinese have scheduled upgrading on some 1,000
kilometers of rail line, including the electrification of
the 592-kilometer Kunming-Nanning railway. Con-
struction has already begun on this project, according
to the Chinese press. Construction has also started on
a new 180-kilometer rail line between Nanning and
the new deepwater port at Fangcheng. These routes
are being developed to support the newly formed
China Southwestern Energy Development Corpora-
tion. This corporation, which is under the control of
the State Council, is to be funded mainly by foreign
investment and is charged with exploiting coal re-
sources and improving coal transport in southwest
China. According to the Chinese media, the capacity
of Lupanshui-currently the largest coal mine in the
area-is to be increased from its present 10 million
tons to 24 million tons by 1990. By that time, rail
transport for coal should have greatly improved,
giving the south the needed capacity. In any case, the
Chinese also plan to upgrade navigability on area
rivers to allow for waterborne coal transport to
Guangdong and Guangxi Provinces.
Relieving Pressure on the Rails. To help move coal,
China is also seeking Western technology for the
development of coal-slurry pipelines. The governor of
Shanxi Province recently announced that a letter of
intent had been signed with a US firm for the
construction of a 1,000-kilometer coal-slurry pipeline
between southern Shanxi and a coal wharf at the
Chang Jiang (Yangtze River) port of Nantong. And
an 800-kilometer coal-slurry pipeline between Nei
Mongol (Inner Mongolia) and the Qinhuangdao coal
port facilities is in the design stage, according to a
Ministry of Communications publication. These two
pipelines-with a total design capacity of 40 million
tons annually-are to be built in stages, but they
should begin to relieve some of the pressure on the
Chinese hope to reduce significantly the coal shipped
to the power industry, which consumes about 20
percent of all coal. The Chinese also are after modern
coal-washing technology. Unwashed coal contains
about 10-percent waste, which if removed reduces
transport costs. Chinese media reports indicate that
although 34 percent of the coal from central govern-
ment-controlled mines is-washed, in Shanxi-the big-
gest bottleneck-only 9 percent of coal is washed.
Coal Ports. We believe that coal port improvements
now under way are more than capable of doubling
existing handling capacity by the mid-1980s.' Accord-
ing to the Ministry of Communications, plans call for
an increase in coal-handling capacity at coastal ports
of more than 60 million tons annually by 1985. Most
of this expected increase in capacity will take place at
Qinhuangdao (30 million tons) and Shijiusuo (15
million tons). By 1985, the Ministry also plans to raise
coal-handling capacity at Chang Jiang ports from 15
million tons to 30 million tons annually. However,
nearly all ports, both coastal and river, are being
expanded to handle increased amounts of goods and
more diversified cargoes. In our view, the demand for
transport created by the increasing volume and vari-
ety of other commodities moving through the ports
will clash with China's efforts to increase coal trans-
shipments through these same ports. Although the
hinterland transport networks serving these port com-
plexes are being improved for coal shipments, little is
being done to accommodate the increasing volume of
general cargo that also must flow over these routes.
Agricultural and Timber Movements
Increases in agricultural production and in timber
imports will place additional stresses on transport
systems, largely because these increases are occurring
before the Chinese can raise or adjust transport
capacity. The liberal agricultural policies that give
individuals and collectives greater latitude in produc-
ing and marketing goods are creating new and unex-
pected demands for transport. In 1982, Chinese agri-
culture had another banner year, with total
Beijing also is seeking to reduce the percentage of
mined coal it moves to end users. Pit-mouth power
plants are being built to convert coal to electricity at
the mine sites. By transporting electricity instead, the
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production up 11 percent and a record grain harvest
of 353.4 million tons, a 9-percent increase. And this
year's record wheat harvest again placed a heavy load
on transportation causing the Ministries of Com-
merce, Railways, and Communications to call for
priority for grain shipments in early July. Although
shipments of domestic foodgrains accounted for only
around 2 percent of railway volume, these increases in
output show up at harvest time, leaving transport
systems with little time to respond. Most transport
allotments-especially railcars-are made well in ad-
vance
We also expect a rise in transport demand for the
increased inputs needed to produce these larger har-
vests. For example, the fertilizer application rate
increased by 13 percent in 1982, in part because of
larger imports from abroad. Fertilizer imports have
been increasing steadily since 1972, but bulk fertil-
izer-handling facilities at the ports have not kept pace.
Because of a shortage of handling and bagging facili-
ties, large quantities of chemical fertilizer are bagged
in foreign countries, making its unloading in Chinese
ports a laborious process. According to the Ministry
of Communications, bagging equipment capable of
handling 2 million tons a year will be purchased and
installed by 1985 to speed up the unloading process.
The Ministry, in cooperation with a US company, has
already installed 20 percent of the planned capacity.
Grain-handling capacities for imports have not im-
proved much since the initial installation of automat-
ed grain elevators at Dalian, Huangpu, and Shanghai
in the mid-to-late 1970s. We estimate the annual
grain-handling capacity of Chinese ports at around 18
million tons-about 2.5 million more than grain trade
volume in 1982 and enough to handle the shipment
levels that we expect through 1985. Although ports
have dockside capacity to handle imports, ships still
continue to experience lengthy delays in unloading
grain at Chinese ports. Poor scheduling of incoming
ships and the large number of small ships China must
use to import grain cause these delays. Large bulk
carriers used elsewhere in the world to carry grain
cannot be used in China because of the shallow depths
of Chinese ports. Inadequacies of Chinese grain ports
are especially troublesome to the larger US ships
vying for part of the US-PRC grain trade. The United
States is China's largest single source of imported
grain and is expected to maintain this position during
the 1980s.
Chinese ports also have been unable to handle effi-
ciently the increased shipments of US logs, woodpulp,
and railroad ties, because improvements to port and
inland distribution networks have been inadequate.
Imports of US timber and pulp have risen rapidly
since Beijing began purchases in 1980, and last year
totaled $237 million. Although China's merchant
fleet has acquired modern timber carriers, China is
just beginning to upgrade timber-handling facilities at
its ports. Part of the problem arises from the need for
Chinese ports to separate logs prior to inland ship-
ment to meet wide variations in the size, number, and
type of logs that Chinese sawmills can process.
inadequate timber-handling facilities at the ports
will restrict log imports for the next several years. For
example, these ports will continue to lack specialized
forklift trucks to move logs within the port areas.
Moreover, new timber berths will not be completed
until the latter part of this decade.
Supporting the Tourist Industry
Since opening the gates to tourism in 1977, the tourist
industry has become one of the most rapid growth
industries in China.' Foreign exchange income in
1982 from tourism exceeded $810 million, a 14-
percent increase over 1981. The number of tourists-
most are overseas Chinese from Hong Kong and
Macao-last year was 7.9 million, with 764,000 of
these being non-Chinese.
' Initially, a lack of hotels, services, and to some extent, transport
facilities slowed the growth of tourism. Since 1979, China, however,
has built 21 new hotels and, according to the China Daily, plans to
complete another 50 by 1985 mainly for the 2 million non-Chinese
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China has had little trouble in supplying tourists with
no-frill long-distance city-to-city air travel. Safety
procedures and stewardess services are minimal at
best, but the tourists will be well supplied with
trinkets such as thermometers, combs, mirrors, and
the airline's form of air-conditioning-a folding Chi-
nese fan. Still, the Civil Aviation Administration of
China (CAAC) provides regular air service to over 80
domestic cities and to 23 cities in 18 foreign countries.
According to CAAC, passenger volume has been
increasing at an average 20 percent a year and is
expected to continue to grow at a similar rate. For the
past few years, aircraft have been generally filled and
profits have been high-CAAC reported over $88
million in profit for 1982.
China has been reinvesting these profits in US com-
mercial aircraft. Since 1980, the Chinese have pur-
chased five Boeing 747s and five Boeing 737s and
have taken options on five more 737s for delivery
before 1985. Most recently, CAAC ordered two DC-9
Super 80s.
Prior to these purchases, the civilian jet
fleet consisted of aircraft bought in the early 1970s-
Boeing 707s, British Tridents, and some Soviet IL-
62s.
Land-transport facilities remain inadequate for large
influxes of tourists. Travel services within Chinese
cities and to outlying tourist attractions are being
improved. In 1981, the Chinese press reported that
only 3,800 cars and buses were available for tourist
travel. Since then China has added more than 3,000
air-conditioned motorcoaches, and a number of cities
have purchased new taxis and buses-largely from
increase of some $19 billion by 1985-a real growth
rate of 8 to 9 percent per year. We believe these
increases will continue to cause serious port conges-
tion for most of this decade. Toward the end of the
1980s, however, congestion problems, particularly in
the dry bulk and general cargoes trade, should ease
somewhat as the Chinese open new facilities. Con-
struction of 132 new deepwater berths in coastal
harbors is to begin by 1985, adding 100 million tons
of cargo capacity. Construction activity is also being
directed toward improving capacity of river ports,
especially on the Chang Jiang. The Chinese plan to
construct 30 new berths on the river below Nanjing
and, this past spring, opened the Chang Jiang ports of
Nantong and Zhanjiagang to foreign ships, mainly to
relieve the pressure on Shanghai-the largest and
busiest port.
China is rapidly developing container-handling facili-
ties, partly to meet its need to speed up movement of
foreign trade goods and partly to satisfy the needs of
its trading partners. Since 1978 the number of 20-
foot-equivalent units (TEUs) moving through Chinese
ports has increased nearly 400 percent, according to
trade papers. By 1985, the Chinese estimate that their
ports will be able to move upward of 1 million TEUs,
largely because of the construction of seven new
container berths financed by World Bank funds.
China also is expanding the container-carrying capac-
ity of its fleet-estimated at around 15,000 TEUs-
through domestic production and purchases of new
and used container ships from abroad. This past June,
the third of six container ships being constructed for
China was launched at a West German shipyard. F_
Japan and Western Europe
Rail and water transport also have been expanded to
support foreign and domestic travelers. In 1981, the
Ministry of Railroads added 64 passenger trains to
serve key tourist cities-Beijing, Nanjing, Shanghai,
and Xi'an. The railcar industry has increased produc-
tion of passenger cars, delivering over 3,300 new
coaches to the railroads in the past three years.
We believe, however, that China will be able only
gradually to improve its limited inland transport
capacity for containers by truck and rail. The Chinese
show few signs of developing the inland highway
network by widening and strengthening roadbeds.
There is also little indication that they will acquire the
specialized handling facilities required to move a high
volume of international-sized containers by road and
Foreign Trade Drives Maritime Expansion
In value terms, China's foreign trade has more than
doubled since 1977, totaling some $38 billion in 1982.
And the Sixth Five-Year Plan calls for an additional
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rail to the interior. We believe that because of the
higher priority being given to other parts of the
transport sector, China will continue to concentrate
on developing container facilities at coastal locations
with containers being packed and unpacked in port
areas for most of this decade
One of China's maritime objectives is to carry as
much of its foreign trade in Chinese bottoms as
possible. China's current claim that 70 percent of its
foreign trade moves on China Ocean Shipping Com-
pany ships is in our view accurate, and the current
expansion of the maritime fleet suggests that the
proportion will increase. At the beginning of 1983,
China's total maritime fleet stood at 12.8 million
deadweight tons, up 8.6 percent over 1980. The Sixth
Five-Year Plan calls for an additional 5.8 million
tons-4.3 to the international fleet and 1.5 million for
the coastal fleet. Thus, China needs to add 4.7 million
tons by 1985 to meet its goal. Domestic shipyards are
slated to produce 2.5 million of these tons, leaving
over 2 million to be purchased abroad
Changing Support for Industry
The pattern of China's industrial growth, with em-
phasis on light industry, and efforts to consolidate and
reorganize industrial activities will both add to and
produce new transport demands during the 1980s.
During 1981-82, China's emphasis on the production
of consumer goods caused the output value of light
industry to expand more rapidly than that for heavy
industry-20.7 percent versus 4.7 percent. Light
industry in 1980 accounted for 46.9 percent of indus-
trial output, and in 1982 it produced 50.5 percent of
total industrial output. This increase in consumer
goods production places additional strains on trans-
port because light industry products require more
shipping space per kilogram than the products coming
from heavy industry. Moreover, these lightweight,
higher value goods generally are better suited for
truck and container shipment-transport services that
in China are rudimentary at best.
Beijing's attempts to reorganize and consolidate in-
dustry into areas of specialization are also dependent
on the abilities of transport systems to adjust to
changing requirements. The shift toward specializa-
tion and interdependence, and away from self-suffi-
ciency, will need the support of a reliable transport
network. For interdependent industries, steady pro-
duction will depend on the ready availability of each
other's parts and components. Because these industri-
al changes are taking place primarily in coastal areas
and other industrial areas in eastern China where
transport requirements already strain available capac- 25X1
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Alternative Transport Development Encouraged
The lack of a developed highway network to handle
short-haul transport is the most critical contraint on
growth. Over the past two years, Beijing has been
encouraging individual enterprises and operators to
offer new freight services to supplement those offered
by city, county, and provincial units. The development
of transport units outside the systems administered by
governmental ministries is also aimed at shifting some
types of rail freight to other transport modes. The
media have complained about the high proportion of
short-haul goods carried by rail that in many cases
could move more quickly and cheaply as highway 25X1
freight. Nationwide, 25 percent of rail freight is
moved over distances less than 100 kilometers, and in
some industrial areas these short-haul shipments ac-
count for nearly 50 percent of rail tonnage.
As part of the effort to reduce the volume of short-
haul goods on the railroads, the Ministry of Commu-
nications (MOC) recently changed its rules so that all
trucks can now move freely between provinces without
having special permits. According to the China Daily,
this change will aid the development of collective-run
and individual trucking services, and will speed the
distribution of goods. The, leadership also is pushing
for closer coordination between and, in some cases,
joint management of MOC transport units and non-
ministry transport units to raise the utilization rate of
trucks. Previously, many of these nonministry truck-
ing enterprises were not allowed to engage in "for-
hire" operations; many vehicles left with less than a
full load, and most returned empty
Since 1978, when the State Statistical Bureau first
reported separate freight turnover volumes for MOC
and nonministry operators, turnover volume by the
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General purpose trucks from
Henan Province cross daily into
Shanxi Province to pick up
coal. In more advanced coun-
tries, specialized trucks (such
as in insert) and mechanized
loading would be used to speed
latter has grown an average of 10.6 percent per year,
while MOC units lost volume in both 1980 and 1981
(table 5). We expect that non-MOC trucking opera-
tions will continue to expand because that sector
already has about 85 percent of the nation's freight-
hauling trucks. This expansion is likely to be slow,
however, because-as the Chinese press frequently
notes-the output of vehicles cannot meet the de-
mand. Before 1990, Beijing plans to replace 500,000
older vehicles and renovate another 800,000 of the
least fuel-efficient ones.
City, provincial, and individual operators also are
investing in shipping fleets for both domestic and
foreign trade, at Beijing's urging. A number of the
larger port cities and a few provinces have begun
independent operations not only for short hauls but
also for foreign trade in Asian waters. As in the
trucking sector, the government is encouraging the
formation of new companies under joint management
of local and central authorities. According to the
Chinese media, these provincial and lower level enter-
prises by early 1983 controlled some 300,000 dead-
weight tons of shipping, which offered services to
Hong Kong, Japan, the Philippines, and Singapore.
Moreover, central authorities are encouraging provin-
cial and local units, factories, mines, rural collectives,
and other enterprises to help in the construction of
roads, bridges, docks, and even railroads which would
support local or regional economic development. By
encouraging local-level entry into the transport field,
Beijing is promoting decentralization in some trans-
port areas that have long been the responsibility of
central government. The head of the railway ministry,
for example, stated this spring that the construction
and operation of the nation's railways should no
longer be the sole responsibility of the Ministry of
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Table 5
China: Highway Freight Turnover
Total
Carried by
MOC a Trucks
Carried by
Non-MOC Trucks
1978
1979
74.5
26.8
47.7
1980
76.4
25.5
50.9
1981
78.0
25.3
52.7
1982
94.9
30.3
64.6
Railways. He went on to offer his ministry's support
to provinces and municipalities for the construction of
local railways.
Although no all-out effort to improve road transport
has been announced at the national level, there is
some evidence that provinces are now at least looking
beyond their boundaries. In Shanxi Province, local
leaders expect, by 1985, to have built 1,000 kilometers
of highway for heavy-duty trucking of coal to neigh-
boring provinces. Because in the past the Ministry of
Communications largely left highway construction up
to the provinces, there are not many direct long-
distance routes. A number of roads terminate at
provincial or county lines because of the lack of
interjurisdictional planning. Local governments, fac-
tories, mines, and farms still are forced to build their
own roads according to Wang Zhanyi, Vice Minister
of Communications, speaking before a national meet-
ing on improving highway transport this past July. He
noted that China planned to build 33,000 kilometers
of highways and upgrade another 15,000 kilometers
by 1985. Most of this construction, however, is sched-
uled for the far west and will do little to improve the
poor road conditions in the east. The plan does call for
the long-needed rebuilding of the three main high-
ways serving the ports of Dalian, Xingang, and
Huangpu
Prospects for the 1980s
During the remainder of the 1980s, we expect the
Chinese to continue to give priority to upgrading
transport facilities related to the energy, selected
foreign trade, and tourist industry sectors. In our
opinion, however, transport will remain a serious
limitation on overall economic growth over the next
decade or more.'
The projects under way or planned for water and rail
in north China will, in most cases, be barely sufficient
to meet modestly growing needs. The upgrading of
rail lines and ports serving the coal areas of north
China are expected to be completed this decade.
Double tracking and electrification of the high-densi- 25X1
ty lines carrying Shanxi coal to ports in Hebei and
Shandong Provinces, also undergoing expansion, will
greatly increase the coal-handling capacity in this
area. However, these projects are mainly focused on
catching up with current needs in the energy sector. 25X1
In 1979, for example, when construction was just
starting on some of these projects, Shanxi Province,
the single largest coal producing area, had over 10
million tons of coal stockpiled because of limited
capacity of railways; by 1982 the stock vile had grown
to over 27 million tons.
During the 1980s, China's coastal ports as well as the
foreign trade ports on the Chang Jiang (Yangtze
River) will continue their expansion programs. The
low priority given to capital construction funding from
the national level is not expected to seriously hamper
port construction. Except for major expansion pro-
jects, Chinese ports can plan and carry out building
projects that are funded by port earnings. Throughout
the 1980s, the Chinese are expected to continue
increasing both port capacity and the number of
'The Chinese have made no mention of having the civilian
transport sectors meet specific military needs during the 1980s, and
little is known of these needs. However, as in the past, higher-than-
normal levels of military rail use will continue to disrupt rail
transport
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specialized cargo facilities. The biggest problem af-
fecting port operations will be the lengthy construc-
tion time needed to improve the vastly inadequate
transport networks serving the port areas.
Rail service is not in as bad a shape as road service,
but increased capacity will likely be insufficient to
meet the full range of burdens further economic
growth will place on the rail sector during the rest of
the decade. The highway sector, on the other hand, is
so far behind that it will require a major overhaul,
probably extending through and beyond the 1980s
before. it can significantly ease the burden on rail
transport. Roads serving port areas have to be wid-
ened, bridges have to be strengthened, both larger and
more specialized trucks have to be acquired, and
trucking departments have to coordinate and improve
their overall operations.
In the aviation sector, China's civil airline is expected
to continue to expand both domestic and international
flights as it attempts to increase foreign exchange
earnings by increasing tourist-carrying capacity. Be-
cause the Chinese still are having problems providing
the high-quality service that Western travelers expect,
additional effort will be needed to bring operations up
to levels approaching those of Western airlines. As
operations and services improve and as earnings con-
tinue to increase, the Chinese probably will buy
additional jet aircraft from Western sources. China
will also be in the market for Western helicopters for
support of offshore oil exploration efforts.
Chinese transport sectors historically have been in a
catch-up mode; China's transportation infrastructure,
even with the successful implementation of planned
improvements, will only be able to selectively support
economic expansion. During the 1980s the speed of
modernization of the transport infrastructure will be
limited by a number of factors. Large amounts of
capital are necessary to develop a modern transport
system. Competition with other sectors of the econo-
my for new resources will limit investment in trans-
port. What funding is available probably will continue
to be directed toward improving transport service to
those areas most capable of earning foreign ex-
change-the coal industry, port complexes, and tour-
ism.
Another. factor affecting modernization, especially in
the rail and highway sectors, will be the availability of
energy supplies. The abundance of coal resources and
the continued production of steam locomotives are
evidence that steam power will remain the predomi-
nant locomotive source during the 1980s. Dim pros-
pects for petroleum production probably will limit
increases in diesel fuel and restrict the spread of diesel
locomotion. On some high-density rail lines that
require a greater hauling capacity than steam can
provide, the Chinese probably will skip the diesel
phase and go directly to electric traction. The avail-
ability of energy supplies also will determine the speed
and direction of modernization in the highway sector.
Here, we believe the primary question will be whether
the Chinese can improve the fuel mileage of their fleet
and at the same time begin replacing gasoline-
powered trucks with diesel-powered trucks.
The Role of Foreign Assistance
The technical capability of the Chinese transportation
sector is still far below levels typical of the industrial
West. The groundwork for the present technological
capability was laid by the massive transfer of technol-
ogy from the USSR in the first decade of Communist
rule. After the withdrawal of Soviet technical assist-
ance, the Chinese moved ahead from the Soviet base
by the exploitation of Western literature, the use of
foreign technicians, and the training of Chinese
abroad. Most recently, the Chinese, in an attempt to
correct deficiencies, have sought out Western and
Japanese firms for more advanced technology and
equipment,-as well as for training and management
assistance. The Chinese are attempting to meet the
needs of the 1980s through purchases, joint ventures,
and coproduction of foreign equipment.
We believe that there will be expanded commercial
opportunities for foreign firms as China continues
improving its transportation networks. China bought
8.5 million board feet of railroad ties from a US
company last May, and it could become an even
larger purchaser, especially if the company will accept
payment in Chinese-manufactured railroad parts. The
Chinese also are looking to the West for diesel
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locomotives, probably because they anticipate a sharp
rise in demand for diesel power when construction of a
range widely from joint ventures such as the recent
agreement between American Motors and the Beijing
Automotive Works for manufacturing jeeps, to licens-
ing agreements for parts, components, and engines,
and even to the opening of foreign parts and service
centers. We expect that there will be a wide range of
opportunities for foreign participation during the
1980s because of the low level of current technology
in the industry and the great number of old and
inefficient vehicles that need to be replaced. For
.example, in a joint venture with the Japanese, China
has recently established an automobile-stripping plant
where used Japanese vehicles will be imported and
stripped for parts because parts are no longer pro-
duced for many of China's imported vehicles. More-
over, the chairman of the recently formed China
National Automobile Industry Corporation, in dis-
cussing industry needs over the next five years, said
that China needs to import a variety of manufactur-
ing technologies not only for complete vehicles but
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number of coal lines is completed in 1985.
In 1982, China produced 486 locomotives-163 die-
sels, 35 electrics, and the rest steam. We believe that
China's locomotive plants, which now meet the na-
tion's needs, will probably fall short of expansion
needs during the late 1980s. The Chinese probably
will continue to concentrate on improving diesel and
electric locomotives, but the bulk of their production
will remain steam locomotives because of abundant
coal resources. We believe the Chinese will probably
turn to the West for electric locomotives before the
end of the decade. Our estimates of current inventory
and future domestic production suggest that China
will have less than half the locomotives necessary to
support the quadrupling of the length of electrified
lines Beijing is planning for 1990.
We believe that China will also depend heavily on
foreign suppliers for continued expansion of commer-
cial aviation during the 1980s because its aircraft
industry does not now have a jet passenger plane in
serial production. However, China's aircraft industry
is attempting to advance its capabilities through
agreements with foreign firms, especially with US
aircraft manufacturers for whom Chinese aircraft
plants are producing parts. The Chinese continue to
express a preference for US-built passenger aircraft
over those manufactured by other foreign firms. And
the larger US-built helicopters are reportedly pre-
ferred for offshore oil exploration activities despite the
coproduction agreement for Chinese assembly of the
French Aerospatiale Dauphin helicopter. We estimate
that China may need some 50 helicopters over the
next few years for these offshore operations, which
now largely are supported with leased Bell helicopters.
China's attempts to revamp its inefficient, backward
automobile industry already has attracted a number
of foreign firms including companies from West
Germany, Japan, and the United States. Though
many of the projects are just getting started, they
also for parts and basic components such as engines 25X1
and transmissions if the industry is to develop rapidly.
In the maritime sector, China's shipyards are increas-
ing the percentage of domestic materials used in ship
construction through licensing and joint production
agreements with foreign firms including those of the
United States. Even though foreign technology is
enabling China to increase its share of the global
market-which in turn is increasing competition in an
already depressed shipbuilding market-foreign firms
and shipyards appear willing to supply China with the
needed technologies." This is especially evident in the
case of Japan, whose technology and assistance is
benefiting Chinese yards even as Japanese yards are
losing orders to their South Korean rivals.
In general, the transport sector favors cooperative
arrangements with foreign firms for technology trans-
fers because of central government requirements that
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production ministries and enterprises obtain their own
foreign financing. The Chinese especially prefer deals
offering manufacturing technology for a product
which can be sold back to the foreign firm or on the
world market. For example, foreign firms-including
one US firm-supplied the loans, equipment, materi-
als, and technology that China needed to begin pro-
ducing marine containers for the world market under
buy-back agreements.
foreign firms have a better chance of selling
transport equipment or supplies if they are willing to
at least accept part payment in Chinese products.
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MONGO
SHAXI
Taiyuan Yan
k k
130 135
iElL NGJI
1 ,~TDandong North
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PYONGYANG
Yellow Sea
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~eotou , L r _n
South
Korea
 iuzhou,
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I hall and,
Meko`ng)
Changzh
K~ 'ry1t 9?
Gulf of
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Eastern China
Transportation Systems
Under
Railroad Operational construction Planned
Double track
Single track
Electrified +--~+ tB~ i-X'-t
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o Minor port
1 Major airfield
-- Road
Major industrial area
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0 100 200 Kilometers
100 200 Statute Miles
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Sea
Philippine
Sea
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