The Trillion Yuan Question: How Can China Fund Its Sustainable Growth?
Congestion in Urban China is appalling...and growing.

Congestion in Urban China is appalling…and growing. Photo by Liang Zhi Gou.

This post was originally featured on WRIInsights and was co-authored with Daniel Bongardt, Transport Policy Advisor with the German Technical Cooperation (GTZ). 

China—especially its cities—has embraced sustainable transport in a big way. The Ministry of Housing and Urban-Rural Development recently urged Chinese cities to increase the number of travelers using non-motorized transportation to at least 50 percent by 2015. The country has been undergoing the most rapid expansion of urban rail systems in world history, and it leads Asia in bus-rapid-transit (BRT) and busway implementation. Plus, dozens of cities are expanding non-motorized transport. Hangzhou, for example, has built up the largest public bike program in the world, accumulating 65,000 bicycles in fewer than two years.

But while China leads the developing world in sustainable urban transport expansion, the country faces great challenges when it comes to financing the construction, maintenance, and operation of new and existing public urban transport projects.

The Great Challenge of Funding Sustainable Transport Projects in Chinese Cities

China lacks dedicated funding structures for planned public transit, biking, and walking facilities—at both the national and local levels. The Ministry of Transport provides funding only for inter-city highway projects, acquiring this revenue from gasoline taxes and vehicle registry fees. Local governments, which are often in charge of urban public transport development, currently support metro or BRT construction through per project-based funding, mainly via land leasing and local loans–neither of which is sustainable.

At the same time, the country’s sustainable transport costs are projected to skyrocket: The planned construction of 2,500 km of metro rail lines across 28 cities by 2015 will cost $186 billion, without accounting for the $8-10 billion required for BRT and non-motorized facilities.

What China Could Learn from Other Countries to Solve the Transportation Funding Dilemma?

The challenges of and solutions to funding sustainable urban transport systems in China was the topic of a recent workshop co-organized by GIZEMBARQCustrec, and SLoCaT, held outside Beijing in early November. The workshop hosted representatives of several Chinese research and government institutions, as well as international experts from the International Transport Forum, the Institute for Transportation and Development Policy, and the World Bank. In an interactive setting, participants collectively identified challenges to funding transportation and shared stories from other countries. Experts then used these experiences to shape recommendations for creating a comprehensive transport funding strategy in China.

The EMBARQ network shared a few examples of sustainable transport funding models, including:

  • India’s National Urban Renewal Mission (JnNURM):The transport component under this landmark program for urban reform allowed 63 cities in India to obtain national funds to advance public and non-motorized transport. The concept of the program is to move people, not vehicles. Cities like Ahmedabad, Surat, and Indore, among others, are developing or expanding advanced BRT systems, which are changing the way urban transport is organized and provided in India. Cities have undergone several reforms as part of the program, including preparing comprehensive mobility plans and modernizing local institutions to face urbanization challenges. For example, cities created urban metropolitan transport authorities and parking policies, among other initiatives.
  • Mexico’s Federal Financial Program, PROTRAM: In Mexico, a very decentralized country, urban transport is a state and local responsibility. Nevertheless, the National Government created the federal financial program, PROTRAM, to support the sub-national levels in developing mass transit projects. The program has provided 34 cities with grants for preparing rail and BRT projects; 10 of these cities are now implementing their systems.
Attendees at the recent workshop in Beijing. Photo credit: WRI

How Can China Expand its Sustainable Transportation Systems?

These experiences—along with those in Germany, the United States, Colombia, Brazil, the United Kingdom, and France—were part of the dialogue for crafting a comprehensive transport strategy in China. It was evident that China must solve a couple of key questions: At the national level, how do you shift spending from highways to sustainable urban transport? At the local level, how do you widen the sources of sustainable funding? And how do you solve both of these dilemmas in ways that are consistent with the Chinese institutional framework?

Some key recommendations for answering these questions included:

  • At the national level: China needs a solid, integrated national urban sustainable transport funding program, with clear objectives and a strict oversight system. Localities developing urban mobility plans through this program must develop performance measures through indicators like modal share and trip distance to show the impact of the national funding. This program would guide cities in solving their public and non-motorized transport needs while helping the country reduce energy consumption and harmful emissions.
  • At the local level: Cites need to change their land-leasing-dependent fiscal structures and be creative in collecting new revenues for sustainable urban transport projects. Chinese cities must reform local debt management and municipal government credit systems in the near future in order to allow cities to sustainably fund urban transport projects through local bonds or loans. They could expand their transport funding sources by applying traffic demand management policies, such as congestion and pollution charges, parking management, and vehicle license bidding fees. They could also learn to fund public transit projects by capturing the land value increases of adjacent properties (much like Hong Kong has done).
  • Participants also suggested creating regional transport authorities with capacity to plan, develop, and oversee all components of the transport system, rather than having multiple agencies and jurisdictions managing various pieces of it .

This workshop showed that learning through partnerships is vital for making progress on sustainable transportation development—not only in China, but in other parts of the world. Organizing partners will summarize the workshop’s main recommendations in a forthcoming paper and submit it to China’s central government early next year.

Dario HidalgoAmit BhattRodrigo Diaz, Haitao Zhang, and Heshuang Zeng also participated in the workshop and contributed to this piece.

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