China turns to $503bn rail expansion to boost growth

Beijing - China plans to spend $503bn to expand its railway system by 2020 as it turns to investments in infrastructure to bolster growth and improve connectivity across the country.

The high-speed rail network will span more than 30 000 kilometres under the proposal, according to details released at a State Council Information Office briefing in Beijing on Thursday. The distance, about 6.5 times the length of a road trip between New York and Los Angeles, will cover 80% of major cities in China.

The plan will see high-speed rail lines across the country expand by more than half over a five-year period, a boon to Chinese suppliers of rolling stock such as CRRC and rail construction companies including China Railway Construction and China Railway.

Earlier this year, China turned to a private company for first time to operate an inter-city rail service on the mainland, part of President Xi Jinping’s push to modernize the nation’s transport network amid slowing growth in the world’s second-largest economy.

China will also add 3 000 km to its urban rail transit system under the plan released on Thursday.

At the end of 2015, China had 121 000 kilometers of railway lines, including 19 000 km of high-speed tracks, according to a transportation white paper issued on Thursday. The US had 228 218 km of rail lines as of 2014, according to latest available data from the World Bank.

The Chinese government will invite private investment to participate in funding intercity and regional rail lines, Yang Yudong, administrator of the National Railway Administration, said at the briefing.

CRRC shares advanced as much as 1.5% in Hong Kong trading. Shares of China Railway Construction climbed as much as 2.1%, and China Railway rose 0.8% in Hong Kong.

Further rail investments will be made in the poorer western cities despite unprofitable operations, Yang said. “We believe these railway lines will break even over time as the flow of people and goods experience fast growth,” he said.

The government plans to “adjust” fares to ensure rail businesses nationwide are viable, the official said, without being more specific.

The rail reforms, including raising ticket prices and allowing private investment, would help ease some financial burdens of state-run China Railway.

The rail operator incurred a loss after tax of 5.57 billion yuan in the first nine months of 2016 and its liabilities totaled 4.29 trillion yuan as of September 30, according to its third-quarter audited report. The company spent more than 600 billion yuan on rail-related infrastructure in the past two years.

Guangshen Railway could see profits rise as much as 68% if average long-distance rail fares climb 30%, Yang Xin, an analyst at China International Capital, wrote in a note on December 26.

The company is the only one among three listed rail operators in China to focus on passenger transport. It operates railways along the Pearl River Delta region and is co-operator with MTR for the line linking Hong Kong to the mainland.

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