What Will It Take to Save China’s Bus Companies?
This is not the best time to own a bus company in China. The past several months have seen a litany of media reports about municipal public transport enterprises across the country failing to pay wages, of routes being suspended, and of large-scale cutbacks of services. Many of these problems have been bubbling under the surface for some time: When I visited several public transport enterprises in 2022, I found that many — especially those in small- and medium-sized cities — were facing serious financial pressure and operational difficulties. One manager cut to the chase: “Our company is facing an existential crisis.”
Now that this crisis is in full view, local governments have reacted swiftly, offering financial subsidies to keep their public transportation systems afloat. It’s an understandable response: Public transportation has long been a priority in Chinese urban development circles, where it’s seen as a way to reduce traffic congestion and cut emissions while providing residents, especially low-income groups like the elderly or people with disabilities, a low-cost travel option.
But cash infusions are not a sustainable solution to the issues facing public transportation enterprises. Their underwater finances are merely a symptom of deeper problems, including falling ridership, growing competition, and inflexible service schedules.
Twenty years ago, private car ownership in China was relatively low, while the relatively small scale of cities limited travel distances and made public transport an easy choice for most residents. Operating costs for buses were cheap and occupancy rates were high, meaning that operators could cover their costs or even turn a profit.
Over the first decade of the 21st century, private car ownership skyrocketed, making public transport less attractive. The expansion of subway systems in many larger cities also contributed to people shunning above-ground public transport options, even as rising labor costs and commodity prices led to a gradual increase in the operating costs of public transport enterprises.
A normal business would have little choice but to adjust its strategy, perhaps by raising prices or cutting lines. But because public transport is a public service, operators were expected to comply with the country’s low-price ticketing strategy and keep fares down while maintaining their services.
At first, the effects were relatively minor, and government finances were able to absorb the occasional loss. Over the past five years, however, the structure of China’s urban transport system underwent a significant change. First, the emergence of shared bikes and ride-hailing altered residents’ travel habits, especially after these platforms began offering steep discounts to attract new users. Second, many riders switched to e-bikes, which offer greater flexibility at relatively low cost. And finally, the COVID-19 pandemic disrupted regular travel, causing ticket revenue to plummet and pummeling local budgets.
In interviews I conducted over the past several years, officials from several municipal transport departments expressed pessimism about the future, suggesting that the decline in passengers caused by the pandemic may be terminal. In 2021, a total of almost 49 billion trips were made, down nearly 40% compared with its 2014 peak. Over the course of my research, I found that ticket income from public transport now covers less than 50% of operating costs in most cities.
More recently, many bus fleets have been upgraded to expensive new-energy models, further increasing fixed operating costs. Adding to the problem, current development strategies entail significant long-term investment in operations and maintenance. This creates path dependencies: As residents become accustomed to certain travel patterns, rolling back investment in the network becomes difficult. In my research, I repeatedly came across public transport lines with few passengers, but whose operators were unable to reduce investment for fear of upsetting riders.
In other words, the current operating losses are not something that can be solved by short-term subsidies. Operating income in the form of ticket sales may continue to decline, while cutting costs will be difficult.
At the peak of China’s urbanization wave, public transportation networks were expanded on the basis of relatively crude metrics. Emphasis was put on the size of their fleets and driven by raw numbers like population growth. That cannot continue. We need more refined metrics for laying out public transportation networks and controlling investment. Vehicles and drivers should be dispatched on the basis of demand, and investment in fleet, staff, and infrastructure made more economical. Cities should be grading enterprises based on efficiency and service.
Around 15 years ago, when I was still new to the field, I took part in the preparation of several transportation planning projects. At the time, most cities I worked with expected buses to assume 20% of today’s urban transport volume. Nowadays, with the exception of a few megacities, it’s difficult to find a single Chinese urban area that exceeds the 10% mark. That doesn’t mean buses should be phased out, but it does suggest the industry has room for improvement.
Translator: David Ball; editors: Cai Yiwen and Kilian O’Donnell; portrait artist: Zhou Zhen.
(Header image: Buses leave a station in Wuhan, Hubei province, March 15, 2023. VCG)