Funding Shortages Halt China’s high-speed railroad projects

According to reports from various media sources

High-speed railway has been the centre of attention for the Chinese regime in recent times. The grand scale and impact of the projects has been a fundamental driving force behind China’s economic growth. Recently, reports have started to surface in regards to the tough funding environment in China. 

Currently, policymakers and local banks have been trying to tighten controls on funding. The local national-owned banks themselves face two restrictions right now; first is the reduction of scale on funding and refinancing, and second is the centralising control on capital flow. Neither proves to be friendly towards the railroad department’s funding needs. In reality, people with knowledge of the situation inside the banks have informed us that as the year end gets closer, credit facilities are under stress due to high demand from traditional clientele groups. Despite their previous commitments to help out with the high-speed railroad programs, in reality, lending new money to the railway projects has decreased. 

Just how debt dependent are the high-speed train projects? Data from China Merchant Securities reveal that in the year 2008, about 34 per cent of the funding for the whole group came from bank loans; in 2009, the ratio rose to 57 per cent; and in 2010, the figure reached 65 per cent. Public data shows that in the first half of 2011, the total debt taken by the railroad department reached 2.09 trillion yuan (approximately $A288.7 billion), resulting in a debt to asset ratio close to 59 per cent. According the China Daily, since the high-speed train accident in July this year, financing future projects down the line have run into difficulties. Approximately 6 million workers have not been paid their wages for over 6 months, not to mention the increase in payment delays to raw material suppliers, such as cement and steel. 

In late September this year, members of the state council held meetings with banks asking for their full support to ensure the availability of funding for the projects. The situation did improve after the political pressure, but far less than what the public expected. 

UPS Foundation Transportation Engineering Professor Vukan R. Vuchic believes that China has shown other countries how high-speed railroad development can be a critical part of a nation’s transportation system; however, there is concern about the pace of the projects. “China should consider slowing down its high-speed railroad development in some terms; this doesn’t mean they would pause all the projects all at once, just to slow down the pace, which would allow technology and capital funding to follow up, which is essential to its success.”

By the end of 2010, there were over 8000km of high-speed rail tracks in China, with a forecast of 13,000km by the year 2012, then reaching 16,000km by 2020. “This is a huge construction project, not just laying down the train tracks. More important is the design and implementation of infrastructure, the real impact the high-speed railroad system would bring. China should study and research more on how to balance out these issues,” said Prof Vuchic.