Japan’s Profit vs. China’s Trillion-Dollar Debt

Japan’s Profit vs. China’s Trillion-Dollar Debt

Only 6% of China’s sprawling 45,000 km highspeed 
rail network turns a profit. The other 94% runs at a loss, contributing to a 6.2 trillion UN, 
approximately $860 billion debt pile for China’s rail operator. By stark contrast, Japan’s original 
bullet train line not only repaid its construction cost within a few years, it now generates over 1 
trillion yen in revenue annually. In the world of fast trains, bigger isn’t always better, and the 
numbers defy what you might expect. Let’s set the stage on why this rail trap matters. Now, a decade 
ago, China launched the Belt and Road Initiative, BARRI. A global infrastructure push spanning 
147 countries. Railways were a centerpiece. From Asia to Africa, China promised new tracks and 
bullet trains to boost trade. Over $1 trillion has already been poured into Barri projects and total 
costs could reach as high as $8 trillion. The goal connect the world and expand China’s economic 
reach. But many of these projects came with heavy loans. The term debt trap diplomacy entered the 
lexicon. The idea that China’s loans might leave poorer nations owing more than they could repay. 
In Laos, for example, a $5.9 billion China built railway came at a price equivalent to onethird 
of Laos’s GDP, pushing the small country’s debt to precarious levels. Meanwhile, Japan has quietly 
been championing quality infrastructure. In 2015, Tokyo announced a $110 billion fund 
for highquality Asian infrastructure, explicitly positioning itself as an alternative 
to China’s Barri. Japan’s overseas rail projects like India’s upcoming bullet train emphasize 
lowinterest financing and rigorous planning. The Japan India deal is telling 81% of the 
project’s cost is funded by a Japanese loan at just 0.1% interest over 50 years. Japan frames 
its approach as sustainable and transparent, implicitly promising not to create debt traps. Why 
does this matter now? Because the bills are coming due. Many Barri host countries are starting to 
struggle with loan repayments in 2025, forcing tough negotiations, project delays, and even asset 
handovers in some cases. Simultaneously, China’s own economy has slowed, making its trillion 
yuan rail debt harder to ignore. Essentially, we’re at a crossroads. Will the world’s biggest 
infrastructure spree pay off or become a cautionary tale? And can Japan’s model provide 
a better path? Japan’s rail revolution began in the postwar boom. In 1964, Japan unveiled the 
Tokaido Shinkansen, the world’s first highspeed railway connecting Tokyo and Osaka. It was a bold 
bet, 380 billion yen, about $1 billion in 1964 to lay 515 km of new tracks. Skeptics wondered if it 
would ever pay for itself. It did, and then some. The line was packed from day one, carrying 11 
million passengers in its first year and over 100 million annually by the early 1970s. In fact, the 
bullet train became so popular that its revenue helped subsidize Japan’s slower rural lines for 
decades. By the 1980s, the Tokaido Shinkansen was extremely profitable, bringing in 1.07 trillion 
yen or $10.5 billion in revenue in 2013 alone. This success taught Japan a crucial lesson. 
Highspeed rail could be an economic engine if built on the right corridor. Yet, Japan also 
learned the perils of overexpansion. In the 1970s and 80s, the national rail operator JNR built many 
new lines, some in less populated areas, and piled up huge debts. By 1987, JNR’s debt had ballooned 
to over 27 trillion yen, a burden the government could no longer sustain. The result was a dramatic 
reform, privatization. JNR was split into regional companies, the JR group, a process guided by the 
1987 JNR reform law. Crucially, the profitable core like JR Central operating the Tokyo Asaka 
Shinkansen was separated from money losing lines. The JR companies were mandated to operate on 
commercial principles, essentially no profit, no new projects. This was a turning point. Japan’s 
rails would henceforth be run as businesses, not public works. It imposed a hard financial 
discipline, but ensured that expensive boondoggles would be avoided. Meanwhile, China’s rail 
journey took a very different track. Through much of the 20th century, China lagged in rail 
technology. It had a vast low-speed rail network, but nothing like Japan’s bullet trains. The 
seeds of change were planted in the early 2000s when China began importing high-spe speed rail 
tech from Japan, France, and Germany. By 2008, China was ready to sprint. In response to the 
global financial crisis, Beijing launched a 4 trillion UN stimulus focused on infrastructure. 
Highspeed rail was the crown jewel of this stimulus. From virtually zero in 2007, China built 
16,000 kilometers of high-speed lines by 2014, astonishing the world. Entire lines appeared 
in mere years. Beijing to Shanghai, 1,300 km, opened in 2011. Beijing to Guangha, 2,200 km. 
By 2012, China’s Ministry of Railways, later restructured as the China Railway Corporation 
in 2013, had a singular mandate. Build, build, build. Government regulations technically required 
new lines to meet costbenefit standards, but local authorities were eager to cash in on the HSR boom. 
The central government often provided half the funding with provincial governments covering the 
rest, frequently via local financing vehicles and bank loans. The result was the fastest rail 
expansion in history. At its peak, China was laying 5,000 plus kilometers of new track each 
year, roughly equivalent to building the distance from New York to London annually. From the start, 
China’s approach treated high-speed rail as a nation building tool. Lines were pushed into every 
province, even remote regions where few people rode the trains. The logic was partly political. 
Integrate inland areas and spur development there, much like 19th century America did with railroads. 
The mechanism was straightforward. State-owned banks like China Development Bank lent vast 
sums to China Railway and local governments, often at low domestic interest rates, and bonds 
were issued to cover costs. Essentially, China was charging the projects to its national credit 
card off the official government balance sheet, but ultimately backed by state banks. And because 
it was all in the family of state entities, immediate profitability took a backseat to rapid 
completion. Beijing’s success at home soon turned outward. In 2013, President Xiinping announced 
the Belt and Road Initiative, explicitly naming railways as a priority for connecting China with 
its neighbors. Chinese rail ses having gained massive experience domestically, were unleashed 
globally. The financing model for Barri rail projects often mirrored China’s domestic one. big 
loans from Chinese banks, often collateralized by the project or guaranteed by the host government, 
and construction by Chinese companies. For example, in 2015, Indonesia solicited bids for 
a high-speed line. Japan offered a careful plan with an official loan guarantee. China 
countered with a loan that required no Indonesian government guarantee via the China 
Development Bank and a promise to build faster. Seduced by these terms, Indonesia chose China to 
build what would become the Jakarta Bandong HSR, now called Woosh. The initial interest rate on the 
Chinese loan was around 2%, later rising to 3.4% for additional funds, far higher than Japan’s near 
zero rates, but the absence of sovereign liability was a key factor. Japan, seeing its rivals growing 
influence, doubled down on its quality over quantity mantra. Japanese agencies like JKER and 
JBIC structured overseas rail deals with extremely low interest and long grace periods, but also 
tied procurement, meaning the projects had to use Japanese trains, signals, and expertise. The 
2015 partnership for quality infrastructure was effectively a policy to uphold certain standards, 
transparency, debt sustainability, environmental considerations, to contrast with what critics saw 
as China’s blank check approach. In short, Japan’s mechanism abroad was to make infrastructure 
appealing through generosity and reliability, albeit at a slower pace, while China’s mechanism 
was to flood the zone with fast money and fast construction, accepting higher risk. At the 
midpoint of our story, the consequences of these divergent strategies started to surface, and the 
narrative took a sharp turn. By the late 20110s, whispers about China’s debt trap diplomacy became 
loud warnings. The turning point often cited is Sri Lanka’s Hambento port. Though not a railway, 
it became a symbol. Sri Lanka, unable to service over 1.4 billion in Chinese loans, handed a 
99-year lease on the port to a Chinese firm in 2017. This high-profile surrender sent shock waves 
through capitals around the world, especially in Asia and Africa, where Chinese financed railways 
were underway. Suddenly, countries began asking, “Will our shiny new Chinese-built railway one day 
belong to Beijing if we can’t pay up?” China, for its part, vehemently denied harboring nefarious 
intent. And indeed, many economists noted that no deliberate trap was needed. Sometimes bad luck 
or poor planning was enough. But perception is powerful. In Malaysia, a newly elected government 
in 2018 froze the China funded East Coast Rail Link amid concerns over cost and debt, later 
renegotiating the price down by a third. In Kenya, the $4.7 billion Nairobi Mombasa standard gauge 
railway built with Chinese loans was running far below ridership projections, requiring government 
subsidies to repay the loan, raising fears it could become another Hambanto. In Kenya’s 
case, the asset at risk would be the Mombasa port revenues which were collateral for the loan. 
Amid this, Japan and other G7 nations seized the moment. They promoted concepts like the blue dot 
network to certify trusted infrastructure projects and in 2019 the G20 with both Japan and China’s 
agreement adopted the principles for quality infrastructure investment. These principles 
emphasized debt transparency, life cycle cost assessment, and social and environmental impacts. 
It was a diplomatic way of saying we must avoid unsustainable projects. The fact that China signed 
on was a subtle admission that some Barri ventures had gone arry. For China’s domestic high-speed 
rail ambitions, a reckoning was also at hand. The break neck expansion couldn’t continue unabated, 
not financially, at least. In 2021, China’s state council, the top government body, issued a rare 
warning about rail debt. New regulations ordered a pause on building new HSR lines that were 
projected to have low usage, specifically routes expected to operate below 80% of capacity were 
to be put on hold. This was effectively Beijing pulling the emergency break. After adding rail 
lines the way one might add bus routes, officials realized the debt was outrunning the benefits. 
By end of 2021, China railways liabilities hit 5.9 trillion UN, 5% of GDP, and the system even 
recorded a 49.8 billion UN net loss that year. A professor at Beijing, Jaoong University, 
bluntly noted that the government cared more about using HSR to boost GDP and connectivity and 
it doesn’t care about debt repayment. But the math was catching up. This moment when even Chinese 
authorities acknowledged the debt trap on their own balance sheet is the fulcrum of our story. The 
age of unchecked rail expansion was over. Now came the age of reckoning. Now we face the outcomes 
of these two strategies laid out side by side. In China, the immediate consequence of its rail 
boom is a paradox, an engineering marvel that operates at a loss. China’s highspeed rail network 
surpassed 50,000 km in 2025, eclipsing the rest of the world combined. It’s an incredible feat. 
Gleaming trains now zip across China at 350 km hour, linking 93% of cities, over half a million 
people. The social benefits are real. Millions enjoy faster travel. Remote provinces are more 
accessible. And there’s national pride in having the most advanced rail tech. China’s newest trains 
can hit 400 km per hour in tests. But financially, the rails are strained to the breaking point. 
Only about six out of 16 major high-speed lines in China are profitable. Mostly those in densely 
populated coastal corridors. That’s roughly 2,300 km of profitable track out of approximately 
45,000 km. Everything else is cross-subsidized. The flagship Beijing Shanghai line, for example, 
earns healthy profits. Net 12.8 billion UN in 2024 and charges up to 553, $75 a ticket. Yet, 
even that fair is less than half of what Japan charges on the equivalent Tokyo route, 
about $160. China deliberately kept ticket prices low nationwide to encourage ridership and 
affordability. But as one analyst pointed out, that means it’s unlikely these projects will turn 
a profit in the short run. The bottom line, China Railway Corporation’s debt has swollen to 6.2 
trillion UN, and annual interest payments alone measure in the tens of billions. To cope, China 
has had to implement damage control. In mid 2024, for instance, ticket fairs on the busy lines were 
hiked by up to 20%. Specifically to subsidize the underused lines. The railway operator also 
cut back train frequencies on lightly traveled routes and even closed 20 newly built stations 
that turned into virtual ghost towns due to lack of passengers. These ghost stations, some in 
inland provinces like Ane or Yunan, stand as concrete reminders that if you build it, people 
might not come. It’s a poignant image. Brand new modern stations gathering dust because the local 
population is too sparse or too poor to fill the trains. However, it’s not all doom for China’s 
rails. The government is pivoting to freight and logistics to extract more value. Historically, 
China’s HSR was passenger only, but the nation has ramped up conventional freight rail, including 
special freight services to Europe, leveraging BRRI trade routes. In 2021, freight revenue for 
China railway actually exceeded passenger revenue for the first time. 435.9 billion UN versus 
301 billion UN, a sign that moving goods, not just people, is critical to its strategy. There’s 
also the intangible payoff. Regional development. Provinces with high-spe speed rail access 
have seen growth in domestic tourism and some businesses relocating to cheaper inland cities, 
which officials argue is a long-term return that doesn’t show up on the railways balance sheet. 
One columnist in China even urged the public to focus more on the high-speed network’s social 
value than its commercial value. This captures China’s perspective. The railways are a public 
good, almost a utility. And like highways or power lines, their value isn’t solely in profit. 
The catch, of course, is that someone still has to foot the bill for operations and debt, and that 
someone is ultimately the Chinese state and by extension, taxpayers. Now, let’s switch tracks to 
Japan’s outcomes. Japan’s high-speed rail system is minuscule compared to China’s in length. about 
3,000 km of Shinkansen lines versus China’s 50,000 km. But in terms of usage and efficiency, Japan’s 
network is a powerhouse. Prior to 2011, Japan’s Shinkansen carried more passengers annually than 
China’s HSR, despite being a fraction of the size. Even today, the Tokaido Shinkansen Tokyo Osaka 
alone runs up to 16 trains per hour per direction, each with 1,300 plus seats nearly filled. It has 
never had a fatal accident in its 59-year history, a testament to Japan’s safety standards. 
Financially, the core Shinkansen lines are profitable and form the backbone of the JR 
company’s revenues. JR Central, for example, earns approximately 90% of its passenger revenue 
from the Tokaido Shinkansen line. The profits from these lines have allowed Japanese rail operators 
to continuously invest in upgrades like new train models, better earthquake protection systems 
without needing government bailouts. In short, Japan’s cautious expansion, only building new 
Shinkansen lines where demand justifies it, has kept its highspeed rail financially sustainable. 
One could say Japan built just enough, enough to cover key city pairs and support economic growth, 
but not so much that white elephants proliferate. That’s not to say Japan’s rail endeavors have 
been perfect. The country did face a debt trap of its own in the 1980s with JNR. As we discussed, 
and even after privatization, the government had to absorb a large portion of JNR’s debt, over 20 
trillion yen. Some of Japan’s local JR companies still rely on subsidies for rural lines. And 
when Japan ventures abroad, it encounters new challenges. The Mumbai Ahmedabad bullet train in 
India, Japan’s flagship export project is facing delays due to land acquisition problems and has 
gone over budget from 15 billion to around 17 to 18 billion. Critics in India question whether the 
ridership will meet optimistic forecasts, raising the spectre that even with a virtually free loan, 
the project might struggle financially if ticket sales disappoint. Japan counters that this project 
is about long-term transformation. kickstarting high-spe speed rail in a country of 1.4 billion 
people and that their generous loan terms give India plenty of time, 15-year grace period, 
50-year repayment to realize those benefits. Here we see an interesting mirror of China’s argument. 
Japan is willing to be patient and absorb risk on behalf of a partner country, trusting that the 
societal benefits outweigh immediate returns. The difference is Japan can absorb that risk 
without jeopardizing its own fiscal stability given the loan is a drop in the bucket of its ODA 
budget. Whereas China’s approach has seen China itself accumulate piles of debt. Comparing the two 
approaches head-to-head, a few key points emerge. First, scale versus sustainability. China built 
about 15 times more high-speed rail in a decade than Japan did in five decades. But Japan’s 
smaller network is generally profitable while China’s is not. Second, speed versus quality. 
China won projects by building fast and cheaply. The Jakarta Bandong HSR, for instance, was 
finished, albeit late, in about 8 years. Japan’s proposals might take longer, but promise 
meticulous engineering. Third, financing terms. Chinese loans typically carry higher interest, 
often 2 to 3% range and shorter maturities, whereas Japanese loans can be near 0% over half 
a century. Over time, those differences are enormous. A 3% loan can double the principle over 
25 years from interest, while a 0.1% loan barely grows at all. This is why officials like those 
in Indonesia called their China funded railway a potential financial time bomb. They see the 
interest clock ticking loudly. On the other hand, Chinese projects often come with fewer strings 
attached politically. If a country doesn’t qualify for World Bank or Japanese aid due to governance 
or debt concerns, Chinese banks might still finance them, albeit at higher cost. So, Chinese 
rail diplomacy gained traction in places others hesitated. A striking comparison unfolded in 
Indonesia. After the contentious Jakarta Bandong highspeed project with China, Indonesia turned to 
Japan for a more conventional medium-speed rail upgrade from Jakarta to Surabaya 750 km. Japan won 
that deal in 2017. By 2020, Indonesia even floated the idea of merging the two projects, effectively 
having Chinese and Japanese consortiums work on linked parts of a rail network. It’s early 
days, but this could be a preview of the future. cooperation instead of rivalry. In such a 
scenario, Chinese financing and construction might pair with Japanese project management and quality 
standards, potentially giving host countries the best of both. Whether that harmony is achievable, 
remains to be seen. Geopolitical competition often gets in the way, but it’s telling that Indonesia, 
having experienced both models, is trying to balance them. Finally, consider the human element 
of these consequences. On a gleaming Japanese Shinkansen, riders pay more but enjoy reliability 
to the second. The operator enjoys healthy profits that ensure the service’s longevity. On a 
Chinese bullet train in a remote province, riders marvel at the speed and cheap fair, but 
each trip is subsidized by the central budget. The station they depart from might be nearly empty on 
weekdays, with local vendors lamenting lower foot traffic than promised. In countries like Kenya 
or Laos, brand new railways are celebrated as modern miracles until budget time when officials 
scramble to find tens or hundreds of millions for the next loan payment. The rail trap can thus 
refer to different predicaments. China caught in a trap of its own making, massive domestic debt 
from overbuilding or other nations potentially ins snared by the terms of Chinese loans. And 
interestingly, Japan, by avoiding the trap, sometimes finds itself left out of deals as it 
initially was in Indonesia because its cautious approach wasn’t as immediately seductive. There 
is an opportunity cost to not taking risks. So, who’s actually ahead in this race? Is it 
the country with more tracks or the country with more profits? In pure network size and 
geopolitical influence, China undoubtedly leads. But in financial sustainability and perhaps 
goodwill, Japan holds an edge. The true consequences will play out over decades. Will 
China be stuck servicing debt for generations?

Japan proved high-speed rail could be a money-printing machine. China proved it could build a network faster than anyone in history. But as China’s railway debt spirals past $900 billion, the world is asking: is the Chinese miracle actually a financial time bomb?

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