BEIJING -- Construction workers on Hainan Island, China's southernmost province, are busy building a high-speed train line in the glaring summer sun.
The Hainan Western Ring Railway, due to be completed by the end of this year, will connect with the eastern ring that is already in service. Once completed, the high-speed railway will stretch more than 600km around the island.
The 345km-long western ring is the first major railway construction project for China Railway, a company formed in March 2013 from what was the Ministry of Railways. The company started working on the project in autumn 2013 and, according to local media reports, had completed all 13 tunnels on the western ring route by late April, spending 19 billion yuan ($3.1 billion), or 70% of planned investment outlays.
Chinese Premier Li Keqiang told the National People's Congress in March: "China has 16,000km of high-speed railway lines in operation, accounting for more than 60% of the all high-speed railway lines in the world."
Silk Road gateway
Hainan Province is also getting a new airport, which is being built near the venue of China's annual international conference -- the Boao Forum for Asia. The airport will likely serve as a gateway to the government's proposed ''New Silk Road'' routes that will link China and Europe by land and sea.
As of the end of last year, China's railway network boasted 112,000km, including high-speed railways. The government plans to invest more than 800 billion yuan to build an additional 8,000km of railway lines, a pump-priming measure expected to shore up the slowing Chinese economy.
An expanded network covering China's inland regions that helps people get around easier and boosts the flow of goods would fuel further growth. Yet, such debt-financed public works projects seem to be predicated on the same-old economic growth model. China Railway reported about 2.8 trillion yuan in debt at the end of 2012 before it splintered off from the former Railways Ministry. However, as of the end of September 2014, its debt had jumped 26% to 3.5 trillion yuan.
Chinese President Xi Jinping and his administration are aiming to achieve both stable growth and structural reform through what they call the "new normal" economic policy. In other words, they seek to pay down China's excessive debts, or deleverage. However, there are still concerns over whether China will continue to borrow to boost its public works investment.
Beijing's railway investment was initially estimated at about 2.8 trillion yuan during the 5-year plan that runs through 2015, but the amount will likely rise to about 3.5 trillion yuan, according to local media reports.
The government will likely earmark about 3 trillion yuan for railway investment initially in the 5-year plan that begins next year. But many observers speculate that the amount will reach 3.5 trillion yuan to 4 trillion yuan.
Rail stocks a top pick
The rail business has become strategically important for China's exports, making railway stocks popular with Chinese investors. The merger of China's state-run railway rolling stock companies, CSR and China CNR, is a case in point, described locally as an "alliance between giants."
Even when there are no apparent earnings improvements, stock prices, particularly those of public companies on the Chinese market, tend to fluctuate amid talk of the Silk Road and the push to realign state-owned companies. Expectations for such grand yet unsubstantial policies support overall stock prices, signaling that it is a government-sponsored rally.
Nevertheless, the government is slow to reform state-run enterprises and the Xi administration still has a long way to go to achieving greater efficiency and quality in the economy.
If China's debt continues to snowball amid sluggish growth, Beijing will find itself mired deep in debt and unable to pay it off. China's excessive borrowing in the past is taking a heavy toll on private and state-run companies in the form of looming defaults.
Speaking at a Tsinghua University forum in Beijing, Chinese Finance Minister Lou Jiwei said in late April that there is a 50-50 chance of China falling into "the middle-income trap" in the next five to 10 years, according to local media reports. He cited the rapidly aging population as one factor, stressing the need for structural reform to bolster market forces. It is quite rare for a Chinese policymaker to publicly acknowledge that the economy is at risk of hitting a plateau.
The Chinese leadership is well aware that huge debts weigh heavily on the slowing economy. But reining in investments could further dampen the economy, which in turn would affect the job market.
In late April, Xi told the Politburo that investment will play an important role in China's future, suggesting his government will further commit to economy-boosting measures. Debt-ridden local governments are also moving to step up investment in the Silk Road.
Still, it remains to be seen how the Chinese economy will wean itself off debt-dependency.