Report on China's Transport Sector in 2006

1??  Overall operating performance

China??s national economy maintained a momentum of rapid growth in 2006,the first year of the 11^th Five Year Plan (2006-2010).Continuous growth of industrial output, international trade and fixed asset investment as well as steady sales in the market bring a sharp rise in demand for transportation.  Confronted with heavy task of passenger flow and freight transportation, communications authorities continued to speed up its efforts in new projects and to tap transport potential to guarantee the transportation of key materials such as coal and the supplies for the smooth implementation of national macroeconomic control measures.

China??s transport sector??s profits and efficiency increased greatly.  In the first seven months to July 2006, the volume of passengers and freight rose by 8.4 percent and 8.7 percent respectively.  But the growth rate slowed down compared to the same period of the previous year.  The overall situation went well with normal increase of passenger flow and freight traffic volume.  Railway sector and ports remained busy in their freight transport and cargo shipping whereas transport pressures were slightly alleviated during the period.  The operating performance of the traffic sector in the first seven months could be seen in the following chart.

Note: The unit for freight transport is 100 million tons(10,000 tons if by air);and the unit of passenger volume is 100 million persons.

II. Railway: steadily increased freight transport and rapidly increased passenger volume

China??s railway saw its freight transport increase steadily in July 2006, with 108,233 cars of cargo daily on average, of which there were 45,892 coal cars, up 0.2 percent.  The railroads carried 205 million tons of cargo in the month, up 6.1 percent, of which there was 92.78 million tons of coal, up 1.7 percent; petroleum was up 2.9 percent while grain, cotton and fertilizers and pesticide were down 13.4 percent, 3 percent and 2.3 percent respectively.  In the first seven months to July, there were 107.57 million cars of cargo daily on average, an increase of 3.6 percent over the same period of the previous year, of which there were 46,260 coal cars, up 1.4 percent.  China??s railroads carried 1.39 billion tons of cargo in the period, up 5 percent, of which there was 637 million tons of coal, up 3.4 percent.

There was a rapid rise in passenger volume by train.  China??s railways carried 114.74 million passengers in July, an increase of 10 percent over the same period of the previous year.  From January to July, the railways carried 703 million passengers, up 8.3 percent.

III. Roads: the number of passengers continuously climbs

1.       The number of passengers continuously climbs

Official figures showed passenger road volume increased 8.3 percent year-on-year to 10.621 billion in the first seven months of 2006.  Turnover on China??s roads saw a year-on-year increase of 8.3 percent and exceeded 589.421 billion person-kilometers during the period.

Road passenger volume in January-July 2006

2.       Road cargo throughput grew rapidly

Road cargo throughout China maintained a relatively fast growth rate.  Cargo road transportation in the first seven months to July 2006 increased 8.5 percent year-on-year to hit 8 billion tons.  Cargo volume came to 532.617 billion ton-kilometers in the period, an increase of 11.3 percent.  The rise was mainly attributed to the sustainable and rapid development of the country??s national economy.  For instance, with a manufacturing base operating in the Jiaodong Peninsula, processing trade developed more rapidly in this region which provided inward and outward cargo transportation for the roads.

Road cargo volume in January-July, 2006

IV. Waterways: Cargo volume increased relatively rapidly and enough foreign trade containers kept transport fares stable

Cargo transportation on China??s major sea and river ports increased 10.4 percent year-on-year.  In the first seven months of 2006, cargo transportation on major sea and river ports increased 15.9 percent to his 2.01 billion tons, up 14.9 percent.

Foreign trade cargo containers were in abundance, which ensured the transport fares remained stable.  China??s transportation services index for export freight container fell 12.6 percent to 1001.9 on 28^th July, almost the same as that of the end of June.  July is a traditionally busy month with a greater supply of goods.  Utilization rates of berths of European and American ocean routes were all above 95 percent.  Even the Japan line remained in doldrums earlier last July, its utilization rate hit more than 70 percent at the end of the month.  In July, China??s ports handled 8 million TEUs, hitting a new record.  Due to fierce competition among shipping companies, the transport fares were not lifted.  On 28^th July, transportation services index for freight containers of Europe, East America, West America and Japan were 1270, 1167, 1252, and 593, respectively.  Transport fares per TEU of the first three routes stood at US$1,025, US$2,000 and US$3,000, respectively, while Japan??s route had a negative shipping charge (surcharge excluded).  Compared to the previous month, transport fare of East America rose slightly, European transport fare remained unchanged, that of West America fell slightly, while Japan??s fare for the past two years hit a new low.

V.                Forecast: Transport volume will be even greater in 2007-4-20

China will continuously strengthen macro control in 2007 to keep the national economy maintain a sustainable and stable development, which provides favorable conditions for transport services.  Main factors that affect passenger and freight transport volume are as follows:

1.       Favorable macro-environment for sustainable development of freight transport

The year 2006 marked the beginning of the national 11^th Five-Year Program (2006-10).  China??s economic growth in 2006 was expected to reach 9 percent.  As a matter of fact, economic growth would exceed previously set targets, barring unexpected events.  With the adoption of China??s macro-control measures, China??s economy will sustain stable growth and investment trends to become more rational.  The expectation of national economic growth not only signals new and high demand for the transport sector, but also provides favorable conditions for sustainable development of the industry.  Meanwhile, China??s continuous adoption of macro measures to rein in the galloping economy will ease the traffic pressure and have a positive effect on freight transport.

2.       Transportation will be steadily increased in passenger volume.

Passenger volume in 2006 saw a rapid increase due to passenger peaks during Chinese holidays, such as the spring festival and week-long May Day holiday.  All those favorable conditions will still exist in 2007.  Passenger volume in 2007 is expected to sustain a stable and fast growth.  The fact that passenger volume continues to increase is attributed to the following facts.  Firstly, with the stable improvement of people??s living standards, people have a much stronger desire to travel, and also have more opportunities to travel, which serves as a solid foundation for a steady increase in passenger volume.  Secondly, the passenger traffic peak caused by summer holidays for college teachers and students and the National Day holiday will continuously boost passenger flows.  Thirdly, passenger volume in China saw an annual average increase of 5.5 percent in the eleven years from 1994 to 2005.  Sustainable development of China??s economy in 2007 will definitely guarantee the growth of passenger volume.  Fourthly, among people??s living expenses, more will be spent on areas such as tourism.  The autumn is a busy season for tourism.  With the increasing number of travelers, domestic and foreign, there will be a much larger demand for passenger transport services.  And passenger volume may hit a fresh record high in the second half.

3.       Transport of key materials will still be a key growth point, with China??s industrial output in 2006 kept a two-digit growth rate.

Although some high energy consuming and highly polluted industries will be restricted in line with strict macro controls, and overheating investment might be in decline, production of energy and important raw materials including coal, electricity, oil and steel will go on to ensure the sustainable development of national economy.  Power shortage still poses a stern challenge to China??s economic development this year.  China will see a shortage of 12 million kilowatts of electricity in 2007.  To guarantee the supply of coal-fired power, coal transport pressure will remain unchanged.  If there will be more supply of hydropower, the coal transport pressure will be eased to some extent.  According to analysis of relevant departments, the coal output will exceed 2.2 billion tons.  The crude oil output will reach 170 million tons.  Over 140 million tons of crude oil is expected to import due to increasingly high consumption.  The steel output will top 300 million tons against a demand of about 350 million tons.  The import of iron ore might exceed 300 million tons, despite a slight decline caused by negative impact of price, demand and policies.   The cement output will top 1 billion tons.  Energy and raw materials are mass transport industries.  The steady increase of basic industrial output will stimulate the increase of transport volume, especially of railways and ports.  In addition, high fixed assets investment and growth rate of imports and exports depend largely on efficient transport services.

4.       Coal transportation will still be of prime importance.

The transport supply and demand tension will still exist, especially in transport of key materials including coal, oil and ore.  Among them, coal transport will still be of prime importance.  Affected by factors such as coal energy and price of coal-fired power, it is hard to alleviate the tension between coal-fired power supply and demand.  The coal transport pressure will be heavier in the second half of the year as a number of newly installed power generators are put into operation in the second half of this year, and more coal will be needed for power especially in summer and winter.  China??s railways and ships will consume most of the coal, with all the major trunk lines operating at full capacity.  In addition, to guarantee the transport of the key material, major ports linking coal centers should also improve their capacity, and relevant departments need to speed up the construction of all kinds of transport infrastructure including the construction of the third channel for transporting coal from China??s west area to east area.  Transport services like unloading of imports of crude oil and iron ore have been improved but still need to pay heed, as backlog of cargoes on wharfs occasionally occurs.