Monday, Mar 27, 2017, 8:26 PM CST – China

Society

New Expressway Policy

PAYING THE PRICE

The controversy surrounding China’s revised highway toll policy is more a question of transparency and accountability than whether or not people are willing to pay to use the roads

Passengers kill time during a heavy traffic jam in Yunnan, April 22, 2015 Photo by IC

"It’s not a question of ‘yes’ or ‘no,’ it’s a question of ‘which one: tax or fee,’” said Wang Wei, an expert with the Chinese Academy of Governance. He was referring to the issue of charging drivers on China’s expressway system, the longest in the world. Wang spoke at a press conference held by China’s Ministry of Transport on July 21, 2015. That same day, a new draft regulation on the tolling system became open to public comment.

Under the existing rules that came into effect in 2004, roads that meet certain standards, ranging from Class 2 highways to expressways, are allowed to keep charging drivers for 15 to 25 years in most cases in order to cover the cost of their construction. 66 percent of the toll roads are expressways. This year’s revision takes a “dual-track” form, one for expressways with tollbooths, the other keeping the remaining roads toll-free, said a statement accompanying the draft. It also removes the caps on tolling periods, making it possible to keep the cash cow alive forever. According to the statement, there is a huge shortfall of money that is needed to build and maintain China’s expressways, and the new method for charging drivers is more fair for those who do not use expressways. The draft proposes to charge drivers through fees instead of taxes.

Perhaps foreseeing that the new policy would trigger frustration, the Ministry of Transport issued statistics about toll roads’ debts for 2013 and 2014, and held several press conferences about the data and the new policy. However, public opinion is on a completely different track, challenging the government’s justifications for both the “yes” assumption and the “fee” preference.

Debts on the Way

According to the Ministry of Transport, outstanding debts mainly accrued from the construction and maintenance of expressways had reached US$600.8 billion by the end of 2014, with a majority in bank loans, the main source of funding. 46 percent of the debt was built up between 2011 and 2014, when one-third of existing expressways were built. Wang Tai, deputy director of the ministry’s highway bureau, explained at the June 30 press conference that the increase in labor costs, rise in spending on raw materials and higher engineering demands due to mountainous terrain in China’s midwestern region had all expanded the budget, and thus exacerbated the debt. Funds raised from tolls were not enough to make annual debt payments, let alone maintain roads. As a result, the ministry reported US$5 billion in annual losses in 2011, a number which jumped to US$24.5 billion by 2014.

There is an ongoing ambitious national plan to lay more roads to complete a nationwide network, with expressways a key part of the blueprint. This means, as Ministry of Transport senior officials have said in several recent press conferences, the debt burden will not be eased until the spending spree slows down in a decade, and increased traffic on the new expressways generates more returns. On top of the new growth, they added, it is time to overhaul roads built in the earlier years of China’s construction boom.

Wang Tai said that besides saving money in the future by using bonds, which are cheaper than loans, and improving management, the solution for the debt problem lies in two new funding sources: private investment and road users.

All of these problems and solutions have been used by the ministry to justify the two main changes in the existing toll system. Firstly, only expressways will be tolled, and existing tollbooths on non-expressways will be scrapped once their scheduled toll period expires. This will reduce the proportion of tolled roads from the current 3.6 percent to 3 percent. Secondly, the 15- to 25-year tolling caps, based on debt maturity, will be removed. Instead, users will be charged indefinitely, or as long as a provincial government claims that there is a need to repay incurred debts and maintain the expressways within its provincial jurisdiction.

Debts in Question

However, as the ministry attempts to justify the new regulations by showcasing its debt and conceding on some tolls, it seems to have missed the point. There is a deep mistrust amongst private citizens regarding the operation of the country’s road system. The sloppy accounts that the transportation agencies have presented have concerned the public instead of convincing them. For example, in June, Guangdong Province transportation authorities published two different 2014 statistics for turnpikes, saying the first one included inaccurate overhead data. This has caused confusion among the public. A month later, at the local legislators’ congress, provincial auditors declared that there were “irregularities” in US$120 million worth of funds used for the ongoing construction of local expressways. And while the banking and property development sectors are both known for windfall profits, in the first half of 2015, listed highway construction companies earned higher profits than listed companies in those industries, a trend that has lasted for the past few years. In 2008, a National Audit Office report found a number of irregularities in turnpike operation, including the establishment of more tollbooths than regulations allowed, the collection of excessive tolls that exceeded construction costs and the investment of land set aside for expressways into other development projects.

Ostensibly, it is fair to have drivers only pay to drive on expressways, which account for less than 4 percent of China’s road network. However, much of what constitutes those drivers’ costs have been transferred to the rest of society. Although China’s logistics-related expenses declined to 16 percent of the country’s GDP in the first half of this year compared to the approximately 18 percent it has held in the past decade, according to the China Federation of Logistics and Purchasing – that is still a much higher proportion than in developed economies. For example, spending on logistics costs in the US in 2012 amounted to about 8.5 percent of the GDP. Half of the logistics costs in China are from transportation, of which 76 percent is road transport. Expressways stand in the center of the national highway network, which links together more than 200,000 population, port and manufacturing hubs. Within this network, traffic flow on expressways is nearly double that on roads of lower standards. Indeed, both the public and policymakers have blamed high logistics costs for unreasonable price hikes on many goods in recent years, from vegetables to imported luxury items.

The new policy’s compliance with the Road Law, which outlines principles of road fees and safety regulations, has also been questioned. There are a lot of doubts over whether some revisions ignore the law, including those that extend the toll period beyond debt maturity and impose fees instead of taxes to cover maintenance costs.

“I would prefer taxation, not fees,” said Shanghai Jiao Tong University professor Chen Xian. He explained to NewsChina that, unlike fees, the legislation and collection of taxes is put under legal scrutiny. The new rule also proposes to create a new agency to collect the fees, a process which means huge amounts of additional spending, he added. Chen thinks the choice for fees may reflect a turf war between government agencies. Moreover, the cost of maintaining the tollbooths themselves has long been a source of social complaints. To make matters more complicated, an anonymous source within the Ministry of Transport told NewsChina that it would be very difficult to reduce the number of manned tollbooths.

The massive debt disclosed this time has once again triggered the recurring controversy surrounding the investment in expressways. Critics say it is not necessary to build such an extensive expressway network at this stage of development, while proponents cite the fact that expressway traffic has been heavier than expected. It is true that predicting traffic is difficult, but in some cases a forecast is not even attempted at all. In a People’s Daily article published on August 3, experts noted that some provinces even planned expressways at the small, county level to elevate local economic growth and thereby polish officials’ political records, without considering potential traffic issues and debt repayments. Besides, the frenzy over expressways comes at the cost of other roads. Expressways are subject to a national review and ranking every five years. As a result, a lot of funding has been spent on renovating sections which were still in decent condition, while shattered roads have been neglected.

The government has pledged to dismiss all concerns surrounding the proposed regulations through adequate information disclosure. However, the way that the justification for the revision has been presented so far has not given the public confidence in the government’s level of transparency now, let alone the future. In this sense, the government seems to have made a false assumption — it’s not that expressway users don’t want to pay, it’s that they want to understand why they’re paying.

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