12 December 2018

China Railway idles as five-year rail target deadline nears

More than halfway through the 12th Five-Year Plan for railway construction, China Railway Corp. (CRC) is stuck, with the prospect of missing its 120,000 kilometer target looking increasingly ominous.

Blame it on too much bureaucratic reshuffling and too little funding.

CRC is an offshoot of the graft-ridden Ministry of Railway which was hived off last year into three functional units — planning and administration, safety and regulation and rail construction and management — simplifying operations but adding extra administrative layers to a sprawling agency.

Rail construction and management fell to CRC, which through no fault of its own, inherited a budget from the defunct ministry that vastly underestimated the cost of a five-year rail construction plan. The result is that rail construction has suffered from a funding shortfall since the reshuffle.

An interim review of the five-year plan found China had about 104,000 kilometers of railways in 2013 including 5,586 km of new lines put into service that year. That means CRC will have to build at least 8,000 km. of new railways by 2015 to meet the goal under the five-year plan.

Interestingly, CRC general manager and party chief Sheng Guangzu {盛光祖} has told state news agency Xinhua that only 6,600 km. can be completed this year, sparking speculation the CRC has quietly jettisoned the target.

Worse still, the aggregate investment under the railway sector’s five-year plan may swell to 3.3 trillion yuan (US$543 billion), much higher than the 2010 estimate of 2.8 trillion yuan, Economy and Nation Weekly reports, citing a source close to the CRC. The source blames the soaring cost of labor, materials and re-housing of affected residents for the increase.

CRC figures show it spent 1.88 trillion yuan on new projects during 2011-2013. If the 3.3 trillion yuan is the final projected investment, CRC would need a budget-busting 1.42 trillion yuan, or 710 billion yuan each in 2014 and 2015. That compares with about 630 billion yuan Sheng said would be spent this year.

Sheng, obviously, is not worried about missing his target which is understandable given CRC’s debt troubles that refuse to go away.

CRC is yet to release financial details for 2013 but analysts are already forecasting significant losses based on data from local bureaus. CRC booked a 1.73 billion yuan net loss in the first three quarters last year, a figure which could have been worse if not for government subsidies.

Tens of thousands of kilometers of high-speed lines built over the past several years have provided fodder for drumbeaters eager to trumpet progress in the railway sector. But CRC itself knows there are nowhere close to a cash cow.

For instance, the Xi’an-Zhengzhou high-speed link in central China saw its operating revenue fall 1.4 billion yuan in 2012 on lackluster passenger traffic. The problem will be magnified when more railway lines are built in the region under a central government mandate to spur development there.

That means CRC could take an eternity to recoup its investment.

A recent decision to cancel several intercity and feeder line projects, including the 36 km. sea crossing rail-bridge between Shanghai and Ningbo and a rail link between Guangzhou and Guiyang, tells us how bad it is for the firm.

So bad, in fact, that it could be forced to turn to outside capital and surrender its controlling stake in some regional lines to local authorities.

Last month, it was reported that CRC could no longer afford to pay 20 percent of the cost of a 54 billion yuan express rail link between Qingdao and Jinan — the two largest cities in Shandong province — as previously agreed with the provincial government. Municipal departments and cities served by the rail line may have to share the burden.

The National Development and Reform Commission, the nation’s top economic planner, is reportedly finalizing measures to liberalize railway financing. These include allowing CRC to develop land around railway lines and stations into residential and commercial projects, taking a leaf out of the Hong Kong railway operator’s playbook.

CRC has invited tenders to assess its land assets, a prelude to potential liquidation of some of these assets. Idle land along rail lines is expected to be revalued and large-scale property development may be on the way, analysts say.

– Contact the writer at [email protected]



EJ Insight writer

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