In the face of a global economic slowdown, Premier Wen Jiabao has called for the launch of major infrastructure projects to draw private investment.
Wen chaired a State Council meeting on Monday that urged the creation 'as soon as possible' of major projects in railways, urban development, energy, telecommunications, finance, health care and education. The meeting called for government policies that would make it easier for private investment in these sectors, including carrying out industry reforms if necessary.
The Ministry of Railways has announced a 27 billion yuan (HK$30.78 billion) bond issue to partially fund 1.7 trillion yuan of rail projects.
'As the deep-seated effects of the international financial crisis continue to be clearly felt and the pressure on the nation's economy increases, effective policies must be immediately adopted to encourage companies to adopt new technologies and upgrade,' the ministry said on its website. 'This is important for boosting a reasonable level of investment, expanding domestic demand and maintaining economic growth.'
The ministry, in expanding its financing channels, could expect to get support from government policies, said the Economic Information Daily, a financial publication of Xinhua. It quoted an unnamed National Development and Reform Commission official saying funds must be proactively raised to complete rail projects that had been put on hold.
The ministry plans to issue 27 billion yuan of medium-term bonds, comprising 22 billion yuan of 10-year bonds plus 5 billion yuan of 15-year bonds, to partially finance the construction of 43 rail projects with a total investment budget of 1.7 trillion yuan, it says in the bond prospectus.
Prior to this bond issue, 531 billion yuan of funds from earlier bonds have been invested in these 43 rail projects, leaving 1.18 trillion yuan of outstanding investment that still needs financing, the prospectus says.
'There is the interest to stimulate the economy,' J.P. Morgan analyst Karen Li said. 'The ministry has the urgency to complete these rail projects. If they don't finish these projects, they will not be able to collect enough revenue.'
The ministry has issued a total of 88 billion yuan of short-term, medium-term and long-term bonds so far this year. Excluding this 27 billion yuan bond issue, it has a cumulative total of 510 billion yuan of outstanding rail construction bonds, according to the prospectus.
With the latest bond issue, the ministry would breach the 'red line' or maximum limit to bond issuance, in which the value of outstanding bonds must not exceed 40 per cent of the ministry's net book value, Li said. 'The Chinese government has unofficially lifted the red line.'
The bond prospectus says the mainland will spend 470 billion yuan on rail construction for the whole of this year, a 64 billion yuan increase from the previous target.