Rail Ministry takes a back seat
In a departure from standard practice on the mainland, a company owned by the Guangxi Zhuang Autonomous Region's government will play a major role in the investment, construction and operation of the province's railway, with the Ministry of Railways taking a lesser role.
The diminution of the indebted ministry's traditional dominance is being driven by its shortage of funds, at a time when Beijing is seeking to expand links between the southwestern province and the Association of Southeast Asian Nations (Asean).
For the period between 2011 and 2015, 280 billion yuan (HK$344.01 billion) has been budgeted for Guangxi rail projects, of which 100 billion yuan will be provided by the ministry, according to a bond prospectus issued by Guangxi Railway Investment Group, which is wholly owned by the Guangxi government.
The company plans to issue 500 million yuan of one-year bonds to pay back part of its bank borrowings, which totalled 15.6 billion yuan as of September 30. Guangxi Railway will contribute 41.4 billion yuan, and the rest of the budget will be financed by other sources.
'This model of jointly funding rail projects has broken many years of rail investment by one source [the railway ministry] in our country, changed the dynamics between the central government and the local government, expanded financing channels and diversified rail investment,' the prospectus says.
James Wang Jixian, head of geography at the University of Hong Kong, said the new model should be welcomed. 'This mode of rail investment is rather new. It is unusual and significant. This is a good thing because it breaks the railways ministry's monopoly,' he said.
Previously, high-speed rail projects on the mainland were financed by the ministry and local governments on a 50-50 basis, while nearly all other rail projects were solely funded by the ministry, Wang said. 'This change is definitely due to the railways ministry's heavy debt and lack of funds,' he added.
As of the middle of 2011, the ministry's debt stood at 2.1 trillion yuan and its gearing ratio exceeded 50 per cent. Late last year there were reports of unfinished rail projects and unpaid railway workers.
The national rail construction budget last year was slashed from 700 billion yuan to 460 billion yuan at the end of 2011, and will fall to 360 billion yuan this year. Despite the drop in funding at the national level, the ministry has budgeted 30 billion yuan for rail projects in Guangxi this year, compared to 29 billion yuan in 2011.
There is a strong need for better infrastructure in Guangxi because of the province's trade with Asean, particularly its neighbour Vietnam, said Qin Yongfang, a Guangxi investment promotion official.
In 2010, when the China-Asean free trade agreement took effect, Guangxi's trade with Asean rose 32 per cent to US$6.53 billion.
However, Guangxi Railway shares the same debt problems as the railways ministry. As of September 30, Guangxi Railway's debt had reached 17.6 billion yuan, its gearing ratio was 55.5 per cent and its accounts receivable totalled 4.16 billion yuan, accounting for 13.33 per cent of its gross assets, according to the prospectus.