As we discussed last week, Beijing’s municipal government is currently considering a controversial proposal that would reform the city’s low subway fare structure. If approved, the proposal would raise the standard subway fare in an effort to alleviate the system’s extreme crowding and costly subsidies.
Although raising the city’s subway fare is, as we argued, economically, socially, and financially justifiable, it is not enough solve the system’s problems on its own. Complementary measures with long-term vision – namely diversifying transport services and increasing revenue sources in the city – are vital to providing a high-quality, integrated network of transport services throughout Beijing, supported by stable and diverse funding sources.
Fare increase inadequate standing alone
Raising Beijing’s subway fare may deliver improvement to a degree. However, simple number crunching and lessons from other cities indicate that fare increases alone are not enough to generate tangible and enduring changes.
Service quality improvement
The congestion ratio of Beijing’s subway – the ratio of the number of passengers to capacity during peak hours – is 144%. This means that the congestion ratio would remain around 105% even if the fare increases disperses 27% of the peak-hour ridership to other times or different modes of transport as planned. Moreover, even though 44% of Beijing’s commuters rode public transport in 2012 – the highest rate in China – still more must pour into the subway and other public transport modes in order to meet the 60% target set by the state council. Without high quality public transport options, residents have no incentive to use public transport, and this goal will remain unmet.
Public subsidies reduction
Subway systems around the world are infamous for being subsidy-intensive. With the exception of Hong Kong and Tokyo, most cities have utilized various levels of direct and indirect public subsidies in order to build and maintain subways. In the United States, for example, revenue from subways recovers between 20-80% of the total operation costs, leaving the rest to be shouldered by municipal or federal governments. Without exploring innovative funding sources, Beijing’s subway will similarly continue to drain public resources.
Complementary measures to help improve service quality and combat mounting subsidies
Although continuously expanding subway capacity might be helpful in easing pressure on underground congestion, that path has a great likelihood of driving up subsidies. Therefore, the following complementary measures should be considered in Beijing:
Diversified transport services
The peril of the Beijing subway’s overcrowding lies in the lack of viable transport alternatives. In contrast to the packed subway, the city’s buses still have supply surplus – by estimation, current buses could serve an additional 4 million riders before reaching maximum capacity. Unfortunately, a lack of exclusive bus lanes and the unreliability of ground transport make it a weak rival to subway, despite the latter system’s flaws. Ultimately, the city cannot operate on a subway alone; Beijing requires a network of differentiated transport services with varied level of services and fare structures that carter to the travel demands of different user groups – from permanent residents to tourists, seniors to children, private car owners to dedicated public transport passengers, and more.
Innovative revenue options
The daunting public subsidies associated with subways in Beijing and elsewhere also raise the question as to whether the municipal government should rely solely on subway fares for revenues. Compared to cities like Hong Kong, Tokyo, and Singapore, Beijing limits its revenue incomes by not tapping into the business opportunities offered by its daily ridership of over 10 million passengers. Enabled by the “Rail + Property” model, Hong Kong and Tokyo reap the property value and sale increases nearby subway stations in order to finance their operation. With such diversified and innovative funding measures, the subway operators not only keep their fare rate relatively affordable, they also can operate financially independent of municipal or federal governments.
Hong Kong MTR Corporation revenue breakdown for first six months of 2013. Graphic by EMBARQ. Data source: Wong, East Asia Securities Company Limited.
Beijing subway Line 4 rough revenue breakdown. Graphic by EMBARQ. Data source: Beijing Municipal Bureau of Finance.
Building a more sophisticated fare system for Beijing’s transport network
The proposed variable ticket pricing is a laudable step toward a more sophisticated fare structure that will help the Beijing rationalize subway ridership, maintain social equity, and raise revenue. Such a system will help achieve fare integration across different modes of transport, streamline connections between various modes, and offer appropriate transfer policy, multi-ride discounts, multi-day tourism passes, or even company transport subsidy schemes. In the face of public opposition to the proposed fare increases, public campaigning and strategic communication is a crucial component of educating users that their money would be well spent, contributing to an integrated, higher-quality, and more user-oriented transport network.