Guangdong's decision to invest 1.41 trillion yuan (HK$1.77 trillion) to beef up its infrastructure over the next three years has been described as dangerous by analysts, since the province is already knee-deep in debt.
"Infrastructure investment can drive economic growth, but it also creates problems," said Zheng Tianxiang, a transport professor at Sun Yat-sen University in Guangzhou.
"This form of economic growth is very dangerous. The Guangdong government realises it has a debt problem, but if there is no investment, there is no growth."
The only way to drive Guangdong's economy was through infrastructure investment since exports to the United States and Europe, the mainstay of the province's economy, had weakened and domestic consumption was not growing fast enough, Zheng said.
"Corruption is inevitable in infrastructure investment. Some officials will prosper," he said.
Fitch Ratings this month cut the mainland's long-term local-currency debt rating to A-plus from AA-minus, on concerns over the country's ballooning debt.
In the next three years, Guangdong has budgeted an investment of 1.41 trillion yuan in 202 ongoing and 258 new transport infrastructure projects.
"Increasing infrastructure construction will speed up the development of northern, southern and western Guangdong and redress the regional imbalance in Guangdong's economy, while strengthening the economy of the Pearl River Delta," said Guangdong party secretary Hu Chunhua.
The Guangdong government aims to increase the province's expressways to 6,800 kilometres by the end of 2015 and 8,000km by 2017, from 5,500km at the end of last year. The province's rail network will reach 4,100km in 2015 from 2,303km in 2011.
From this year to 2015, Guangdong plans to complete 17 intercity railway projects in the Pearl River Delta, with an investment of 111.2 billion yuan. By the end of 2015, a 386km rail network will cover nine Pearl River Delta cities, including Shenzhen, Guangzhou and Zhuhai.
From 2012 to 2016, Guangdong Provincial Communications Group (GPC), a transport infrastructure firm owned by the provincial government, planned to build 1,832km of roads in Guangdong, including 1,675km of expressways, said the firm's bond prospectus.
These projects will require a total investment of 201.7 billion yuan, of which the company will contribute 55.3 billion yuan and the Guangdong government 22.35 billion yuan. The rest will be financed by other channels, including bank loans and a planned 1.5 billion yuan bond issue by GPC.
At the end of September last year, GPC's gearing ratio was 69.66 per cent and its debt totalled 135.65 billion yuan, according to its bond prospectus.
"Many road projects have low returns. Many roads in Guangdong have still not repaid their loan principal," Zheng said.
In the Pearl River Delta, 300 billion yuan has been invested in highways, of which 200 billion yuan is still owed to banks, according to Zheng.
The central government's decision to cut road tolls last year would adversely affect toll road operators, said mainland credit rating agency Dagong Global Credit Rating. In the first nine months of last year, GPC's net profit plunged 31.1 per cent to 1.41 billion yuan as a result of the new policy, said its bond prospectus.
The city of Dongguan is a classic example of the debt problem in the Pearl River Delta. Its debt ranged between 30 billion and 50 billion yuan, wreaking havoc on the finances of some of its townships, said Lin Jiang, a professor at Lingnan College at Sun Yat-sen University.
Dongguan's townships such as Zhangmutou and Shipai were close to bankruptcy, Lin said.
"But even if they go bankrupt, Dongguan can bail them out as the city's [gross domestic product] exceeds 300 billion yuan," he said. "Dongguan's debt will not explode in the foreseeable future, but will linger on as its townships are facing structural economic problems that cannot be solved in the near future."
Guangdong's massive infrastructure expenditure was manageable from a fiscal perspective, said Ivan Chung, a senior credit officer at Moody's Investors Service.
Last year, Guangdong reported a fiscal revenue of 1.47 trillion yuan and gross domestic product of 5.7 trillion yuan, hence spending 1.41 trillion yuan on infrastructure over three years was controllable, said Chung.
As of the end of 2010, Guangdong's debt was 16 per cent of its GDP, below the national average of 25.9 per cent, according to Moody's.