MTR takes its tried and tested construction model to Shenzhen

The MTR Corporation is looking to turn the mainland's heavily subsidised railways into a profitable business with the launch of its first metro line in Shenzhen yesterday.

The 6 billion yuan (HK$7.2 billion) Shenzhen Metro Line 4, which will operate under MTR's rail-plus-property model, is a centrally located, 20.5-kilometre north-south arterial route that connects all four metro lines in Shenzhen.

It is the mainland's first rail route fully funded by a private company under the build-operate-transfer model and opens on the heels of Shenzhen Metro's warning of a 22 billion yuan deficit in the next five years despite government subsidies.

While the MTR knows better than anyone that investing in railways is seldom profitable, it hopes to do what it did in Hong Kong 30 years ago - by proposing a financial model that blends railway operation with property development.

The rail operator is understood to be in talks with the authorities for the right to develop its 30-hectare depot at the Longhua station. According to MTR documents, eight hectares of the depot are reserved for property development.

Although there are no details of the project, this method of financing is likely to be a first on the mainland.

'Government subsidies are expected to remain a major mode of financing public transport services on the mainland, but if the rail-plus-property model proves to be sustainable, the government will consider adopting it for other rail projects,' said one rail expert who did not want to be named.

MTR has been pushing for the deal since 2003, when Beijing lifted the restrictions on foreign investment under the Closer Economic Partnership Arrangement.

Though it is the shortest route in Shenzhen, Line 4 occupies the network's most central location and provides interchanges for all lines. It will also link up with the future high-speed railway to Guangzhou and Hong Kong's East Rail at Futian.

Building the line will cost less than half the price of Hong Kong's West Island Line - a three-stop extension that will cost HK$15.4 billion at 2008 prices.

MTR has been granted a 30-year franchise for Line 4. The company has been actively seeking opportunities overseas in recent years as the scarcity of land in Hong Kong means the era of rapid railway development in the city has come to an end.

On the mainland, the MTR opened a metro line in Beijing last year and is in talks for more lines in Beijing and Shenzhen.

Andy Lee Yiu-chi, head of Centaline Property Agency's Shenzhen branch, said property prices in Longhua had the potential to rise 60 to 70 per cent in the next five years, to 40,000 yuan per square metre, owing to the area's improved accessibility.

About 200,000 passengers will use the line initially but this number is expected to grow as more lines open.

Shenzhen Line 1, a longer route connecting Lo Wu to Shenzhen Baoan airport, records an average of two million trips per day.

The fare on Line 4 ranges between two to six yuan. The MTR will also collect lease and advertising income from the 100 shops and 900 advertising boxes at the 15 stations on the route.

MTR shares closed 0.9 per cent lower at HK$27.15, compared with a 2 per cent drop of the Hang Seng Index.