Guangzhou pours 235b yuan into building new metro links

Guangzhou will spend more than 230 billion yuan building metro railway links this decade, as the nation's former export powerhouse accelerates its massive infrastructure spending to compensate for flagging exports, analysts say.

From 2011 to 2020, the Guangzhou Metro Corp will invest 234.6 billion yuan (HK$287 billion) to build 312.6 kilometres of metro railway in Guangzhou, capital of Guangdong province.

It will invest 170 billion yuan from 2011 to 2015, and 64.6 billion yuan from 2016 to 2020, according to its bond prospectus.

Guangzhou Metro, established by Guangzhou's government to build the city's metro railway, plans to issue 3.5 billion yuan of five-year bonds to partially finance the programme.

One of the reasons for the ambitious roll-out is a desire by planners to connect Guangzhou with an intercity railway to create seamless railway transport among Pearl River Delta cities. The goal is to have a unified infrastructure within the delta by this year and economic integration by 2020, the bond prospectus says.

"Guangzhou is accelerating its investments in metro railway, because the local government is trying to boost domestic demand," said Zheng Tianxiang, a transport professor at Sun Yat-sen University in Guangzhou. "Recently, various regions on the mainland have been pushing infrastructure projects."

In recent days, Premier Wen Jiabao had visited Guangdong and called for the expansion of domestic demand to compensate for the province's weak exports in the face of poor US and European demand, Zheng noted. "How do you drive domestic demand? Increasing infrastructure is the age-old method."

However, he cautioned that the lesson from a 4 trillion yuan stimulus spending by the central government in 2008 was that too much investment spent too quickly led to quality problems.

"The central government has stressed corruption must be prevented and quality maintained in this new round of infrastructure projects by local governments," Zheng said.

Safety would also be a crucial factor in the metro construction, China Chengxin International Rating said. Guangzhou Metro would experience great financing pressure from its initial input of 170 billion yuan, the credit rating agency warned. Its "railway plus property" business model was also vulnerable to government cooling measures, it said.

Guangzhou Metro has invested 9.44 billion yuan in property around its train stations.