Text: | Print|

Rail targets private funding

2014-04-04 10:40 Global Times Web Editor: qindexing
1

The central government is eyeing a massive injection of private capital to finance China's railway construction through a railway development fund, as part of a slew of incentives to stabilize economic growth.

The setting-up of the fund was announced at a Wednesday meeting of the State Council, China's cabinet, which vowed to ensure railway investment is "steady" and its construction "fast."

The cabinet meeting pledged to put 6,600 kilometers of new railway lines into operation this year, 1,000 kilometers more than last year.

The State Council unveiled a raft of measures to raise funds and reform investment and finance for the railway sector, including the issuing of up to 150 billion yuan ($24.3 billion) of railway funds and encouraging banks to finance rail construction.

Among the measures, the establishment of a railway development fund is believed to be a concrete step in the reform of railway finance.

The fund is positioned to be a capital-raising platform with the backing of central government, the Economic Information paper reported on Thursday, citing a well-informed source.

While social investors will not be directly involved in the construction and operation of railways, their gains will be guaranteed, the source said.

The fund hopes to raise 400 to 600 billion yuan over 2014 and 2015. Central fiscal funds are expected to account for about one-third or a quarter of the total fund, which means social capital will top 400 billion yuan by the end of 2015, the source said.

The plan also requires 70 percent of the fund to be used in State railway projects during the initial phase, to satisfy the massive demand for infrastructure in China's central and western regions.

The creation of the fund comes when China Railway Corporation (CRC) is over 3 trillion yuan in debt.

The CRC was created after the Ministry of Railways was dissolved in March 2013, following a series of corruption scandals.

The fund signifies a departure from past practice in which the government rolled out a direct stimulus package and marks the government's intent to explore new ways to stimulate the economy, said Ma Hong, an expert on infrastructure with Shanghai-based CBI Research Center.

It aims to energize the railway sector and help to improve efficiency, Ma told the Global Times Thursday.

However, experts believe attracting capital from the private sector will be difficult.

"Low profit and a long pay-off time will deter social investors, who prefer investments with higher returns," Ma said.

The Economic Information report said a fund management company controlled by the CRC will be responsible for the fund's day-to-day operation.

"If social investors have no say in how to run the business, they probably would not be interested in taking part," said Ma.

The cabinet's announcement of pouring more investment into the railway sector is viewed as part of an economic package after economic indicators show signs of a slowdown.

"The railway sector is one of the few that still has huge potential for accommodating a massive-scale investment," Zhao Jian, a professor with the School of Economics and Management at Beijing Jiaotong University, told the Global Times on Thursday.

Most industries, such as steel, cement and flat glass, are already facing overcapacity issues and cannot afford a new round of expansion, Zhao said.

The State Council said nearly 80 percent of State-funded railway investment will go to less-developed central and western regions.

The speeding-up of railway construction in central and western China will also stimulate the growth of related industries, aid the urbanization process and help tens of millions of people to shake off poverty, the cabinet meeting said.

However, experts urged caution in applying the pro-growth incentive.

"Previous massive spending on high-speed rail left huge debts and gave the railway sector a hangover," Zhao said, noting that the high-speed rail capacity is currently under-used and its profitability low.

If the central government wants to spend money on high-speed trains in western regions, where it is less populous and high-speed trains less useful, then China is poised to see an even bigger hangover in the years to come, Zhao said.

Comments (0)
Most popular in 24h
  Archived Content
Media partners:

Copyright ©1999-2018 Chinanews.com. All rights reserved.
Reproduction in whole or in part without permission is prohibited.