Transport projects to hit rough patch
In a sign that the country's stimulus programme may have been too aggressive, the Ministry of Transport admitted the transport infrastructure construction programme faced 'funding shortages', while the shipping industry must cope with 'extreme overcapacity'.
'It is difficult to resolve the shortage of funds for transport infrastructure construction,' the ministry said on its website. 'This year, due to the government's policies to curb inflation and adjust local government investment vehicles, the construction of infrastructure including roads faces funding shortages.
'Loans for projects this year were significantly lower than last year, especially for new construction projects.'
The ministry also said the shipping market was in the doldrums. 'This year, there was extreme overcapacity in shipping, partly due to softening demand for shipping, the weakening domestic economy, and excessive launch of new ships.'
It said it would ensure major transport infrastructure projects for the 12th five-year plan period to 2015 would be completed.
Nomura analyst Jim Wong interpreted this statement as hinting that some smaller infrastructure projects would not be completed as planned.
For all of this year, the ministry forecast fixed-asset investment in transport infrastructure - including roads, ports, waterways and airports, but not railways - would increase 11.6 per cent to 1.48 trillion yuan (HK$1.8 trillion).
The increase is considerably lower than in the past two years. Fixed-asset investment in highways soared 42.4 per cent to 1.06 trillion yuan in 2009 and rose a further 21 per cent to 1.28 trillion yuan last year, according to the National Bureau of Statistics. The surge was driven by Beijing's stimulus package during the financial crisis.
'You should expect slower growth in road construction in future,' said Kelvin Lau, an analyst with Daiwa Securities. 'The central government is concerned that many toll roads are loss-making and highly geared.
'The high growth period of road construction is past. There is a big oversupply of roads in some provinces where you don't see much traffic.'
In addition, some investors may want to delay investing in road projects because of the central government's nationwide review of road toll rates, which will last until May next year, Wong said.
In the first nine months of the year, investment in road construction grew 12.9 per cent to 882 million yuan, slower than last year's growth rate by 4.6 percentage points.
'Many road projects are short of funding,' Lau said. 'Some projects have been suspended.'
Many highway projects are financed by local government investment vehicles, to which banks are reluctant to lend at the moment.
To alleviate shipping oversupply, the transport ministry said it would tighten control on the release of new ships including oil tankers, bulk cargo ships and container ships.
The shipping woes are a worldwide problem because of the weak US and European economies. 'I expect many global container shipping companies to be loss-making in 2011 and 2012,' Wong said.
The amount of debt, in yuan, local governments had amassed as of last year, much of it spent to finance the infrastructure building boom