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June 24, 2017

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Taiwan High-Speed Rail: From pride to embarrassment

TAIPEI, Taiwan -- A futuristic rail service linking Taiwan's two largest cities with hyper-modern technology was meant to be a source of pride, but instead it has turned into a rich source of embarrassment.

Billed as one of the largest privately funded transport projects ever, Taiwan High Speed Rail was designed as proof of engineering prowess on an epic scale, but in recent days it has instead impressed with its ability to amass enormous debts.

The crisis has reached a level where the government's top priority is to ensure that the trains keep moving along the 345-kilometre (214-mile) railway line between Taipei and Kaoshiung.

"The high-speed rail operations should not be suspended, because that would seriously impact the nation," Premier Wu Den-yih told reporters last week.

Using Japanese technology, the trains run at maximum speeds of 300 kilometers (186 miles) per hour, but the company operating the service has steered into the red at an even faster pace.

Less than three years after the much-touted rail system went into operation in early 2007, it has incurred 70.2 billion Taiwan dollars (2.1 billion US dollars) in losses, or roughly two thirds of its capitalization.

In a desperate bid to put the company on an even keel -- or prevent it from sinking altogether -- the government has now put career civil servant Ou Chin-der in charge of the enterprise.

Picking Ou is almost symbolic -- he is widely known for leading a rescue team that pulled two boys from under a building where they were trapped for a week after a devastating earthquake 10 years ago.

Now he is charged with saving an even larger object, a company that is not only losing money by the second but eating away at the island's confidence in its ability to think and build big.

"I'll try my best to obtain trust and support from banks so they can provide us with new loans under more reasonable terms," Ou said after being named chairman.

However, the company does not just want new loans, but also direct government compensation for some of the losses it has incurred, a company spokeswoman said, asking not to be named.

"Is there anything more ridiculous than this?" said Lo Shu-lei, a legislator and high-profile critic of the railway.

"It's a private company, but now its investors demand the government endorse the fresh loans only a few years after they encountered operational problems," she said.

Few could have predicted the financial trouble when the 420 billion Taiwan dollar project was taking shape more than a decade ago.

The build-operate-transfer (BOT) formula adopted for the railway seemed a win-win solution, with the corporation constructing and running the line for 35 years before handing it to the government.

What planners failed to take into account was an abrupt slowdown in the Taiwan economy, meaning the 280,000 daily passengers projected in reports in the 1980s and early 1990s have now shrunk to a mere 87,000.

"I don't think anyone could have foreseen the drastic change of Taiwan's economic landscape since then," said Hank Huang, head of BOT research at Taiwan Institute of Economic Research, a Taipei-based think-tank.

However, the company has said its monthly sales averaged two billion Taiwan dollars, which had allowed it to nearly break even on occasion.

It is this fact that leaves Huang more optimistic about the rail service's future than most.

"Considering its monthly operation revenues, the company has a good chance of coping with the financial problems if it can obtain loans on favorable terms," he said.

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