Rail building budget slashed by 100b yuan

PUBLISHED : Saturday, 07 May, 2011, 12:00am
UPDATED : Saturday, 07 May, 2011, 12:00am

The Ministry of Railways has cut the mainland's rail construction budget for the whole of this year by 100 billion yuan (HK$119.55 billion).

In the first quarter alone, the total value of railway contracts plunged 90 per cent, mainly because of the central government's investigation into project tenders linked to former railways minister Liu Zhijun.

The ministry had reduced spending on rail construction for this year from 700 billion yuan to 600 billion yuan, said Li Jiansheng, chief financial officer of the China Railway Group.

'Our contracts this year will be less than last year. This has something to do with Liu,' said Li, who is also chief legal officer of the Hong Kong and Shanghai-listed company.

The China Railway Group and China Railway Construction Corporation (CRCC) are the two dominant state-owned rail construction firms, accounting for more than 80 per cent of the railways built on the mainland.

Liu was dismissed in February and is under investigation for violation of 'discipline', a code for corruption in the official circles. On March 25, Premier Wen Jiabao told a State Council anti-graft meeting that construction tenders, including railway tenders, would be investigated.

'China Railway's dwindling new orders mirror China's drastic cuts in new railway orders as a result of the recent changes at the Ministry of Railway's leadership and the ongoing investigation into corruption,' JP Morgan analyst Karen Li wrote in a report.

The total value of rail construction tenders fell about 90 per cent in the first quarter, CRCC announced on April 29. The value of new contracts, including those in railways, won by the company fell 37 per cent to 80.39 billion yuan in the quarter.

According to Li's report, the value of CRCC's railway orders collapsed 96 per cent to 3.3 billion yuan in the first quarter. 'The value of railway projects launched for bidding in China fell off the cliff, down around 90 per cent year on year,' it said. China Railway's total new contracts fell 30 per cent to 127 billion yuan in the first quarter, driven by a sharp decline in railway orders, Li said in her report.

'The weak results by China Railway and CRCC suggest the existing numbers may be difficult to achieve in light of raw material cost inflation, cuts in railway capex, delay in cost compensation from the Ministry of Railways as well as surging operating expenses. We expect earnings cuts to follow,' she wrote.

To compensate for losses in railway orders, China Railway was seeking more contracts in urban rail construction, Li Jiansheng said.

She was optimistic her company's urban rail orders would rise this year from last year's urban rail contracts of about 40 billion yuan. Urban train lines do not come under the purview of the Ministry of Railways but are controlled by the local governments of the cities where they are built.

Tough line

Cuts in new railway orders are linked to an anti-graft investigation

China Railway Construction Corporation saw the total value of its first-quarter rail construction tenders fall about: 90%


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