CRC's debt-driven business model unsustainable: experts
China Railway Corp (CRC) had 4.14 trillion yuan ($640 billion) in debt as of the end of the first quarter in 2016, a media report said on Wednesday, and experts warned that the company's business model is unsustainable.
CRC, previously part of the now defunct Ministry of Railways, saw its debt increase 10.4 percent year-on-year during the quarter, financial news portal caixin.com reported.
The company was not available for comment as of press time.
It posted a first-quarter net loss of 8.73 billion yuan, up 35.07 percent year-on-year, according to the firm's financial report released on April 29. The financial report also said CRC will be indebted for years to come as it borrows to fund railway construction.
As of the end of the first quarter, CRC had borrowed 3.32 trillion yuan domestically, up from 3.07 trillion yuan year-on-year, according to CRC.
"A plunge in cargo volume and heavy loans were major reasons for CRC's loss," Wang Mengshu, a railway expert at the Chinese Academy of Engineering, told the Global Times on Wednesday.
Rail freight in China fell 11.9 percent year-on-year to a 5-year low of 3.36 billion tons in 2015, according to the National Development and Reform Commission.
The decline continued in the first quarter, with cargo volume down 9.43 percent year-on-year to 788 million tons, CRC said.
Cargo is the major revenue source for CRC. In the first quarter of this year, CRC's total revenue declined 4.54 percent year-on-year to 201.96 billion yuan, according to its financial report. Freight revenue fell 14.59 percent to 52.11 billion yuan,
"CRC's debt keeps growing as the country continues building high-speed railways, but this business model isn't sustainable for CRC," Zhao Jian, a professor at Beijing Jiaotong University, told the Global Times on Wednesday.
It's logical for China to develop high-speed railway services to improve the transportation situation, said Zhao, and that it's necessary for the country to build railways in its vast western region because of strategic needs.
The country should stop building unprofitable railways, noted Zhao.
At the same time, there's ample scope to build commuter rail services, which will ease urban traffic jams and provide more convenience for passengers, said Zhao. Such lines, also known as metropolitan railways, cover less than 70 kilometers.
China's railways had 823.8 billion yuan in investment in 2015, according to the Xin-hua News Agency in January, which cited data from CRC. In 2015, 9,531 kilometers of new lines started service, including 330.6 kilometers of high-speed railways, according to another report from Xinhua.
"CRC plays an important role in railway construction, particularly as the country hopes to use railway construction as a new driving force to boost the economy," Wang said.
By the end of 2015, China had 121,000 kilometers of railways, and the nation's high-speed rail links covered 19,000 kilometers, the most in the world, according to Wang.
Although railway passenger traffic increased by 10 percent in 2015, it's still hard for that segment of business to offset woes in cargo operations, said Wang, noting that CRC must change and seek more ways to generate profit.
CRC is trying to do just that. It signed a strategic cooperation agreement with the Haier Group on April 16 for containerized shipments. Media reports said CRC will provide designated freight trains and logistics services for Haier to help the company with rail deliveries both domestically and overseas.
