SHENZHEN METRO'S EXPANSION PLANS ON TRACK

UNCLAS SECTION 01 OF 03 GUANGZHOU 017249

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TAGS: ELTN ECON ETRD EINV CH HK
SUBJECT: SHENZHEN METRO'S EXPANSION PLANS ON TRACK



1. (SBU) Summary. The Shenzhentong, a smart card used to
pay for public transportation much like Washington's
SmarTrip, is proving quite popular with Shenzhen commuters,
gaining 10,000 new cardholders each day. Already in use at
all metro stations, Shenzhentong is now working to expand
its aboveground coverage, from its current 40% to 70% of all
buses and taxis. Meanwhile, negotiations are underway with
retailers, financial institutions, universities and
government departments to allow wider use of Shenzhentong
cards, following the model of neighboring Hong Kong's
Octopus. At the same time, Shenzhen Metro is also expanding
its core business of running subway lines. Currently,
Shenzhen Metro's network is very limited, and mainly focused
on providing access to and from the border crossings with
Hong Kong. However, ongoing and planned projects should
improve connections between points in the city, as well as
between Shenzhen, Hong Kong and other points in the Pearl
River Delta. End summary.


2. (U) On May 25, EconOffs visited Shenzhen Metro
Corporation and met with General Manager Shi Yousheng, to
discuss the expansion of both the Shenzhentong smart-card
system and the city's subway network. Also present at the
meeting were Senior Engineer Zhang Ming, manager of Shenzhen
Metro's programming, planning and statistical department;
and Shenzhentong General Manager Jia Jungang. Shenzhentong
was set up to develop the smart card project Shenzhen Metro
and three other companies, including Shenzhen Bus Group, the
city's largest bus company.

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SHENZHENTONG: Shenzhen's SmarTrip
--------------


3. (U) Shenzhentong is Shenzhen's answer to Washington's
SmarTrip, with which most of our readership is probably
familiar. (Note: `Tong' means "to communicate" or "to
connect" in Chinese. Its official English name is Shenzhen
TransCard. End note.) Both are rechargeable cards that
allow the user to pay for various modes of public
transportation, facilitating seamless transfers between
them. By late May, approximately 620,000 Shenzhentong cards
had been issued, and the number is growing by 10,000 new
cards each day. The company expects to issue two million
cards by the end of the year, far surpassing its initial
estimate of 1.5 million. Approximately 500,000 Shenzhentong
transactions are carried out each day. Shenzhen Metro
collects an average of about 210,000 subway fares a day, of
which 80-90,000 are paid with Shenzhentong cards.


4. (SBU) Shenzhentong is also working with the city's 42
aboveground public transport companies to expand the
system's coverage from 40% to 70% of all buses and taxis.
On average, 120,000 bus fares are paid for each day with a
Shenzhentong card, out of a total of some 3.36 million.
According to a recent press report, 1,700 of the city's
public buses are equipped with Shenzhentong readers.
Meanwhile, only 100 of the city's estimated 12,000 taxis
have readers, but the company expects half of the 2,000 new
taxis that will enter service in Shenzhen by the end of 2006
will have readers.

Hong Kong's inspiration: One card fits all
--------------


5. (SBU) Given Shenzhen's proximity to Hong Kong, it is safe
to assume Hong Kong's Octopus smart card system has been the
main inspiration for the Shenzhentong, if not the whole
metro system. Metro stations in Shenzhen are very similar
to their Hong Kong counterparts in terms of design and
layout, and even the Shenzhen Metro logo is almost identical
to that of MTR, the company that runs Hong Kong's metro.
Therefore, it is not surprising that Shenzhen Metro is
seeking to expand usage of Shenzhentong in some of the ways
that have made Octopus one of the most successful electronic
cash systems in the world.


6. (SBU) Shenzhentong is already discussing with financial
institutions the possibility of integrating bankcard and
credit card functions into Shenzhentong cards. It has also
contracted with newspaper groups to install readers on
vending machines, and is negotiating with McDonald's and 7-

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Eleven to install point-of-sale (POS) readers at their
stores. Eventually, the company hopes that many of the
various identity cards currently used by Shenzhen residents,
e.g., student and disability cards, will be integrated into
their Shenzhentong cards.

One Country, One Card
--------------


7. (SBU) Shenzhentong and Octopus both hope to make their
systems interoperable, but progress has been slow. Jia
estimated that interoperation could take place by December
2006, but Shi quickly dismissed that suggestion aside,
instead providing a more modest estimate of 2010. Making
the necessary adjustments to all the readers is a daunting
task. In Hong Kong alone there are 40,000 Octopus card
readers, and there are several thousand Shenzhentong readers
in Shenzhen, according to Jia. Additionally, both sides
still need to devise a sensible plan to deal with
fluctuating exchange rates between their two currencies.

Hong Kong takeover?
--------------


8. (SBU) Shenzhen Metro officials did not appear
particularly excited about the plans for interoperation. In
fact, both Shi and Jia suggested that it is basically Hong
Kong's MTR that is pushing for it, in anticipation of its
coming incursions into Shenzhen. Last year, MTR reached an
agreement with the Shenzhen government to construct an
extension to Line 4, and to operate the entire length of the
line once completed, including the part currently operated
by Shenzhen Metro. MTR also signed agreements to invest in
the construction of lines 2 and 3. Moreover, according to
Jia, it is the Hong Kong side that has slowed down progress
on interoperation, demanding "too many" technical
specifications just to skew the bidding process in favor of
a Hong Kong company.

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EXPANSION PLANS: Much needed
--------------


9. (SBU) Shenzhen Metro currently operates two metro lines:
Line 1 and Line 4. Significantly, both existing lines have
terminals on the Hong Kong border, at the Luohu and
Huanggang crossings, respectively. Huanggang is only a
vehicle crossing at this point, but Hong Kong's KCR is
expanding its rail system to Lok Ma Chau, across from
Huanggang on the Hong Kong side. There is already a KCR
station across the border from Luohu (Lo Wu in Cantonese).
Most of Shenzhen Metro's rolling stock is designed by
Canada's Bombardier, and made by a joint venture between
Bombardier and the Changchun Railway Vehicles Company. It
also operates some cars made by a joint venture between
Germany's Siemens and Shanghai Metro.


10. (SBU) This current network is quite limited, given
Shenzhen's huge sprawl. Areas east of Shenzhen's
traditional downtown near Luohu are not served at all by the
existing lines, and neither is Shekou, a prosperous district
favored by local expats, whose ferry terminal offers direct
connections to Hong Kong, Macau and Zhuhai (including
services to Hong Kong International Airport (HKIA) that
allow the passenger to check-in at the ferry terminal and
proceed to his flight without submitting to Hong Kong entry
formalities). Shenzhen's own Bao'an Airport is also not
served.

But help is on the way
--------------


11. (SBU) Shenzhen Metro expects the extension of Line 1 to
Shenzhen's airport to be completed in 2008. This direct
connection to the Luohu crossing should help boost the
airport's already significant Hong Kong-originated passenger
base. Meanwhile, construction on Line 2 is expected to
conclude in 2010. This line will run from Line 1 to Shekou
and its ferry terminal. Passengers will also have the
option of traveling on to Hong Kong via the Western
Crossing, a bridge from Shekou to Hong Kong's New
Territories. Moreover, General Manager Shu said that

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"[they] hear" MTR is planning to build a metro line
connecting Hong Kong and Shenzhen airports. According to
Shu, the new line would be built to support existing plans
to move all of HKIA's China-bound flights to Shenzhen
Airport.

Out to the sticks
--------------


12. (SBU) The undergoing expansion of Shenzhen's metro
system should also help Longgang and Bao'an, the two
Shenzhen districts that are not part of the Special Economic
Zone (SEZ),and that have consequently largely missed out on
Shenzhen's growth bonanza. Line 3, which is expected to be
finished by 2009, will connect the Futian and Luohu
districts with Longgang, with 13 stations outside the SEZ.
Bao'an, for its part, will benefit from the extension of
both lines 1 and 4 to new terminals in Bao'an, at the
airport and Longhua Township, respectively.

And then more
--------------


13. (SBU) Looking ahead, Shenzhen Metro plans to start
building Line 5 in 2007, and hopes to also start
construction on Line 8 during that year. Line 5 will run in
an arc across the north of the city, connecting all other
lines. Meanwhile, Line 8 will connect Luohu with the
Yantian district, where the city's largest container port is
located. There are no timelines for the construction of
lines 6 and 12, which would run entirely in Bao'an and
Longgang, respectively, despite the fact that both lines are
marked on Shenzhen Metro's master planning map.

On to the PRD
--------------


14. (SBU) The expansion of Shenzhen's metro system will also
help increase the city's connectivity with the rest of the
Pearl River Delta (PRD). When expanded, Line 4 will reach
Longhua Station, from which new high-speed lines are being
built to Guangzhou to accommodate the new Express Rail Link
(ERL) between Hong Kong and Guangzhou. The new lines are
expected to be in place by 2010. There is also talk of
building a spur from those lines to connect Guangzhou and
Dongguan with Shenzhen Airport and Shekou.

COMMENT: The little metro that could?
--------------


15. (SBU) Shenzhen's metro still has a long way to go before
it comes close to truly resembling Hong Kong's, but it is on
the right track, at least on paper. However, the MTR's
appropriation of Line 4 does merit extra attention. As
Shenzhen and Hong Kong's transportation networks become more
integrated, perhaps it is Hong Kong interests that will set
the norms -- and the priorities. Focusing Shenzhen's
transport infrastructure on border crossings will be a boon
for cross-boundary trade, but it might not be as great for
its development as a city. With a population that already
surpasses ten million, the city cannot afford to view itself
-- and be viewed by others -- as Hong Kong's appendage.

DONG