Bank of China

Spending on rail projects down 76pc

PUBLISHED : Thursday, 16 February, 2012, 12:00am
UPDATED : Thursday, 16 February, 2012, 12:00am

Spending by the mainland on railway construction was 76 per cent lower in January than a year earlier as funding shortages for the sector persisted. Just 8.73 billion yuan (HK$10.74 billion) was invested in expanding the network.

That followed a 34.8 per cent year-on-year drop in spending for the whole of last year, to 461 billion yuan - well below the 600 billion yuan target announced in May by Railways Ministry spokesman Wang Yongping.

James Chung, an analyst at Masterlink Securities, predicts rail construction spending will be down more than 40 per cent year on year in the next two months.

Although the steep decline in spending last month was partly down to the Lunar New Year holiday - which fell in February last year - more significant was the lack of funds for new rail projects, said Guotai Junan Securities analyst Gary Wong. 'The problem will continue in the first and second quarters,' he said.

Although the sector raised 270 billion yuan through bank loans and bond sales in the fourth quarter of last year, far more than the market expected, this was not enough for work to start on a significant number of new rail projects.

'Most of the funds went to pay workers' salaries and raw materials not paid in the past,' Wong said.

In December, Railways Minister Sheng Guangzu said fixed-asset investment in railways would be 500 billion yuan this year. However, Chung's report noted that, even with fixed-asset investment of 450 billion yuan for the year, the ministry would suffer a net cash outflow of 126.86 billion yuan. Chung predicts rail construction expenditure will be 350 billion yuan this year.

Banks were reaching the limits of their lending to the sector, which Wong said would receive only 150 billion yuan in bank loans. Senior officials at the National Development and Reform Commission were trying to persuade banks to increase lending to the sector to 300 billion yuan, Wong disclosed.

'The Railways Ministry said it is seeking more private investment in railways this year, because it is short of funds,' said SinoPac Securities analyst Vivian Liu.

'The ministry most lacks funds for high-speed rail, but the private sector is not willing to invest in high-speed rail because of its low returns. This is a contradiction.'

Yesterday, the Hong Kong share price of China Railway Construction Corporation (CRCC) rose 6.6 per cent to HK$5.97 after it said on Tuesday it had won US$1.4 billion in contracts in Africa. Since December, CRCC has announced contracts worth US$8.2 billion in Africa, and the other leading Chinese rail-construction firm, China Railway Group, said it won a US$1.1 billion contract in Angola.

CRCC's Hong Kong share price has risen 37 per cent since January 3, while China Railway's Hong Kong shares are up 32 per cent, at HK$3.22.

The share-price rises were not driven by fundamentals but by improved market sentiment concerning China's credit easing and hot money flowing into the Hong Kong capital markets, said CCB International analyst Eliza Liu Hongke.


China's world ranking in terms of its total railways. With some 91,000 kilometres of track, it is behind only the US and Russia