Comparative Analysis on Investment and Financing Models of Urban Rail Transportation

Conference paper
Part of the Springer Proceedings in Business and Economics book series (SPBE)


Urban rail transportation is trend of urban traffic development in the world. The utility model has advantages of high volume, high-speed, high security, and significant environmental protection. Government should give priority to establish an effective investment and financing mechanism to solve construction funding issues. For social benefits purpose, authors analyze and compare characteristics of London, Tokyo and Beijing in rail transit, investment and financing mode, summarize similarities and differences to establish investment and financing mode to meet Beijing city railway transit development, provides necessary background knowledge. This paper discusses policy direction and development trend of rail transportation construction investment and financing system transformation process in recent years. The authors propose future rail transit construction references in Beijing.


Urban rail transportation Investment and financing mode World city Comparative analysis 

In recent years, with rapid development of urban scale and economic construction in China, urban population has increased rapidly. To achieve purpose of controlling urban growth, increasing urban capacity and relieving traffic congestion, railway transportation such as subway, light railway, Inter City Express (ICE) has become an inevitable choice to alleviate problem of relieving traffic congestion in large city.

The world cities of Tokyo and London have already built a perfect urban rail transit network, and actively explored innovative ways of rail transit investment and financing methods to promote further development. Urban rail transit has characteristics of large amount of investment, long payback cycle length, operating risk and public welfare. Initial stage of rail transit construction, the government must give priority to establish an effective investment and financing mechanism to solve construction funding issues [1].

23.1 Urban Rail Transportation Industry Development Advantage

In the tenth 5-year plan, China’s governments has included subway traffic development into the outline of the National Economic and Social Development 5-Year Plan, and token it as a major strategy for stimulating rapid, steady and sustainable development of national economy. Many cities have invested a large number of manpower and material resources, formulated comprehensive subway development general plan, and carried out in-depth feasibility research [2]. In recent years, China’s government has continuously increased in investment in subway construction (Fig. 23.1).
Fig. 23.1

Proportion of China’s rail transportation in public transport [6]

China has made great efforts to develop urban rail transit, mainly because it has several advantages:

Strong transport capacity

Rail transportation is an important approach to solve traffic issues in large cities. Such as subway transport, it has high-volume passenger capacity and powerful urban rail transit system transportation capacity. A carriage capacity is about 150–200 people, and one-way transmission capacity is up to 80 thousand people per hour.

Fast running speed

General operation of city bus running speed is only 20 km/h, and road will be more crowded during rush-hour traffic. Underground trains are not subject to ground restrictions with the highest speed of 80–100 km fast forward.

Small occupation of land

Rail transportation construction can save land resources. Especially subway transportation facilities, it will reduce land resources waste, economize ground space and conserve quality resources.

Energy consumption

According to statistics, rail transportation energy consumption per unit can save 30 KJ more than public transport, and save 2132 KJ more than automobile. With Beijing metro as an example, most of subway trains/track catenary DC power transmission system, traction system is VVVF, which greatly use energy sparingly.

23.2 London Rail Transportation Investment and Financing Models

The London Underground Ltd is a government company, responsible for entire subway system which is including metro vehicles, stations operation, and decision on formulation and adjustment of metro services and fares. London Underground is specifically responsible for metro system operation; maintenance and upgrading of subway tunnels, metro vehicles, stations and signal systems are carried out by several different network lines.

23.2.1 London Rail Transportation Investment and Financing in PPP Model

London rail transportation introduced private equity investors and established Item Company, and was in progress by PPP model. PPP (Public–Private-Partnerships) model is a long-term cooperative partnership established between the public and private institution to provide public services. In March 1998, UK government launched PPP model to address issues, private infrastructure companies were in charge of maintenance and facility, while public sectors were responsible for operation. UK has become an advocate of infrastructure projects and public services financing through the PPP model.

UK government has adopted a railway transit construction investment policy, and has taken a series of preferential measures to private institution investors and financial group, such as investment insurance, tax incentive. Thus, investors have the lowest rate of return guaranteed; UK government would grant government subsidies in failure situation to promote society investment in rail transportation construction.

23.2.2 London Rail Transportation Investment and Financing in Bot Model

BOT (Build-Operate-Transfer ) is a form of project financing, wherein a private entity receives a concession from the private or public sector to finance, design, construct, and operate a facility stated in the concession contract.1

Part of Light rail transit project in London adopted by BOT model. Since 90s, there were three private institutions in UK have signed with government investment, construction and operation track lines in light rail transit projects. They were CroydonTram in London, Manchester Metroiink (Manchester medium volume rail transit system), and Midiandiink in Bermingham. Their common feature: partial route was to reform former national railway or disused railway; combined with light railway form, flexible route planning, and rapid transit formation in urban center; lead real estate redevelopment along abandoned railway.

23.2.3 London Rail Transportation Investment and Financing in PFI Model

PFI (Private finance initiative) is a way of creating PPPs by funding public infrastructure projects with private capital. PFI and its variants have now been adopted in many countries as part of the wider programme of privatisation and financialisation, and presented as a means for increasing accountability and efficiency for public spending.2

In 1992, UK government had introduced PFI concept and gradually matured to consider private capital introducing public construction under pressures of controlling fiscal expenditure and improving infrastructure [5]. UK HM Treasury had introduced PFI official definition: public institution had bought high quality services in a long-term agreement from private sector, which included delivery achievement of mutual agreement, corresponding maintenance and repairmen construction of necessary infrastructure. London public rail transportation routes were government planned and private sector operated. In most instances, all bus services had commercial practices by competitive bidding for a 3 year agreement. UK rail transit privatization has drawn on the experience of bus service industry, implemented bidding system, and introduced actual strength, good credit and quality service private companies [4].

23.3 Tokyo Rail Transportation Investment and Financing Systems

Because urban rail transportation investment has the attributes of public welfare, most of urban rail transit constructions in big cities were dominated by government investment.

23.3.1 Tokyo Rail Transportation Investment and Financing Model

There are five main ways to raise urban rail transit construction funding in Japan, mainly there are mainly including government grants, users’ burden, beneficiaries’ burden, bonds issuance and loan floatation.

In April 1982, Tokyo government has encouraged investment in urban rail construction, increased urban railway transport capacity, and established “Special Urban Railway Construction Accumulation Funding System”. The system has stipulated in view of railway as a public facility, railway sector should implement corporation tax reduction and fixed assets tax in preferential tax policy. Various subsidies and tax incentives for rail transit investors by the government has promoted investment in urban rail transit construction by the public society. There were set up a semi-public and semi-private rail transportation enterprise. The Japanese private railway length in Tokyo has all within the scope of rail transit lines , ratios were as high as 34% and 46%, there is no precedent in any other cities.

23.3.2 Tokyo Rail Transport Construction Tod Model

In urban planning, a transit-oriented development (TOD) is a type of urban development that maximizes the amount of residential, business and leisure space within walking distance of public transport. A TOD model includes a central transit stop, such as train stations, light railway and bus stations, which are surrounded by a high-density mixed-use area with lower-density areas spreading out from this center.3

In Japan, TOD model began in the early 1920s, was first adopted by the Hankyu railway company in Osaka and achieved great success. In order to enhance public transport attraction, Japanese government formulate “The Third National Comprehensive Development Plan”, and proposed road transportation facilities supply in urbanized area should maintain adequate coordination with urban land use development. Many private rail companies in Tokyo operate industry comprehensive management along the railway route like Retail , real estate, buses and hotels. Government has unified land use, railway construction planning and infrastructure facilities.

23.3.3 Tokyo Metro Projects Investment and Financing Mode

Tokyo Metropolitan Government Bureau of Transportation is responsible for Tokyo Metro track line construction and maintenance. Toei transportation and Battalion subway are operating units for Tokyo metro transportation, which are managed by Tokyo Metropolitan Government Bureau of Transportation.

Public rail transportation

Government subsidiaries distribution condition: the high speed railway construction underground allowance system in 1962 implemented the maximum amount was 6.5% of interest difference; in 1978, construction allowance was 10.5–70% of construction costs. Payment period was 5–10 years; railway construction funding in 1991 provided a one-time interest free loan with 40% project cost of Railway Construction Company and Battalion subway construction project.

Privately-operated rail transportation

Government subsidiaries distribution condition: P line system in 1972, in order to promote comprehensive development of rail transportation and residential buildings along track line, financial subsiding targets construct multiple track and satellite unban subways for three city circle to optimize city construction and industrial structure. The railway construction company was responsible for project construction and providing cost of project implementation, private developers reimbursement could pay 50 times in 25 years, interest rate was less than 5%; urban rail accumulation funding system in 1996, part of metro equipment modification project cost was added to existing operating fares; station comprehensive reform allowance system in 2001 implemented barrier free, earthquake prevention, fire protection and other renovation project; underground high-speed railway construction allowance system in 2002 applied to private lines.

23.4 Transformation Process of Beijing Rail Transportation Investment and Financing Models

In 2016, Beijing has issued the “Beijing 13th 5-Year Railway Transportation Construction Plan”. It proposed to rail transit and high-capacity rapid transportation and ground transportation based integrated public transport system as development priorities. In order to give full play to urban public railway transport, people were encouraged to give priority to rail transit travelling. Average daily passenger volume will also increase from 11 million passengers to more than 18 million and 500 thousand passengers; rail transportation will become urban public transport priority selection, proportion will be accounting for more than 58%.

23.4.1 Transformation Process of Investment and Financing Models

Beijing earliest subway Line 1 and Line 2 have entirely led by government programs with funds allocated by Beijing municipal government. It reflected government arrangement investing and proposed integrated subway project model.

Beijing Subway BATONG Line construction management mode has reflected characteristics of financing Item Company. Financing rising has mainly composed by three parts: Beijing municipal government investment, National Development Bank loans and foreign particular loans, state-controlled enterprises investment. Government investment, government loan guarantee and stock system operation were main features [3].

The Beijing Metro Line 4 and Line 14 was adopted traditional PPP model, and introduce social investors through franchising. Social investors were responsible for projects investment and regular operation for a certain period. Subway construction has introduced social capital by “equity financing + franchising” compound PPP model, established a bridge between rail transit construction and insurance equity.

23.4.2 Investment and Financing Models of Urban Rail Transportation Comparison Between London, Tokyo and Beijing

Tokyo, London and Beijing rail transit project financing (Table 23.1) have also taken government leading mode, adopt preferential policies to attract private sector investment, and cultivated market mainstays and innovation types. It has advantages of maximum capital, long term and stability.
Table. 23.1

Investment and financing models of urban rail transportation comparison


Government responsibility

Social institution responsibility

Impact on the public

Suitable application


100% govt. construction investment; social investment increase, government grants.

Enterprises are responsible for operation investment; private high-speed rail connect with bus industry function.

Government formulates pricing 4 years once.

Municipal Road assets include tunnels, railways and stations.


100% govt. construction investment; preferential policies (investment insurance, tax incentives).

3 infrastructure companies maintenance and construct subway system within 30 years franchising.

Govt. pricing welfare operations; profit communities provide funding.

Municipal Road assets include tunnels, railways and stations.


100% govt. investment before 2004; 70% total investment, financing and construction .

MTR CORP. joints cooperation mode in investment, construction and operation by 2004.

Low fare policy; business circle along subway line.

Better govt. finance situation; perfect fiscal system.

23.5 Conclusion

Beijing should draw on the experience of Tokyo, London and other world city in rail transit investment and mature financing experiences, actively formulate preferential policies to effectively mobilize social resources in rail transportation investment construction, and implement investment diversification strategy. The government should actively guide large-scale suburban land development and rail transportation mode. Through implementing diversified investment and financing strategy to attract various economic elements participate in rail transit construction, so as to promote rapid and healthy development of suburban county economy.



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Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

  1. 1.International Information Research DepartmentBeijing Institute of Science and TechnologyBeijingChina

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