I remember reading something like this as well. I even mentioned it to my Chinese mate once on the phone and he replied "What? Don't be stupid, high speed train is so cheap here it costs almost nothing". He even claimed that often it was cheaper than the intercity buses (or "coaches" if you prefer). Now it's been several years since I've been to China, and my friend (like many) can have a tendency to exaggerate... but I think that the reality is not so bleak for highspeed rail in China. It's very expensive to build and run but apart from that is an absolute godsend. I live here in France, and they have only really made highspeed rail viable by making car/bus travel almost the same price. Massive taxes on fuel and obscenely high road tolls make the far quicker trains attractive. Trains are far less of a hassle in terms of security (less, not none...), generally less stressful, and for anything less than about 700kms are simply quicker than air travel. Sometimes that gets extended to more depending on how easy your airport is to get to. I live in Bordeaux, and even with less than half of the ride to Paris on high-speed rails (so max speed on those bits around 160km/h if memory serves) it only takes 3-3.5hrs (for ~550kms). They are about to start construction on upgrading the rails to high-speed rails all the way, and when that happens I can assure you air travel will drop to pretty much zero. Most people never fly to Paris from Bordeaux - when it takes only 2hrs from the centre of Bordeaux to the centre of Paris, the extra hassle of flying makes it simply non-sensical.
What is my point? High-speed rail TODAY suffers many, mainly financial, hurdles in China. Who cares? It is a fabulous investment for the future - it's far, far less carbon intensive and can move large numbers of people safely and quickly. In 15-20 yrs when China's population has enough money to make expensive tickets less of a problem - when they start making road users pay the full cost to the environment and economy of road travel (some say they aren't even there yet in France...), then everything will make sense. Just like US government invested massive money in roads a few generations ago, so the Chinese government is investing now, or will be if rail companies go broke! In the long run we will look back and say "they did the right thing, it looked expensive but look at the advantages now". You'll see...