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Caixin

As debt mounts, Beijing halts two high-speed rail projects

Fate of $20bn in new lines depends on outcome of 'deep' review

China has relied heavily on infrastructure projects such as high-speed rail to maintain economic growth  during slowdowns.   © Reuters

Beijing has ordered a halt to work on two high-speed rail projects with total investment of 130 billion yuan ($20 billion) in Shandong and Shaanxi provinces, signaling concern over growing local government debt.

Work on a 270 km line connecting Jinan, the capital of eastern China's Shandong Province, and the city of Zaozhuang in the south of the province, was suspended last month, Caixin has learned. The other action saw work come to a halt this month on three lines with planned total investment of 71.6 billion yuan being built as part of a project called Guanzhong Chengji, which consists of 13 lines in northwest China's Shaanxi Province, centered on the provincial capital of Xi'an.

A person close to the Shandong rail system told Caixin that work on the Jinan-Zaozhuang line was halted partly because a section of the line was too similar to a stretch of the Beijing-to-Shanghai high-speed rail line that has operated for years. The new line was being funded by the Shandong provincial government and had a total planned investment of 58.5 billion yuan.

The Guanzhong Chengji project's suspension was announced on the website of the Shaanxi government's branch of the national state planner in a post dated April 12. "The province has done an integrated review of the situation regarding rail construction and finances, and has suspended work on the Guanzhong Chengji project to lower risk levels," the post said.

The post made it clear the halt applies to the entire project, both parts under construction and those yet to begin. It said that "deep research" will now be conducted by the provincial transport and rail authorities before deciding on the next step.

China has relied heavily on high-speed rail and other infrastructure building to maintain its fast economic growth, and such construction has become a policy tool to stimulate the economy during slowdowns. But some worry that resorting to such construction too often could lead to dangerously high debt levels, and result in projects that are poorly designed and underutilized.

In March, the State Council released a document on the development of the nation's rail system, partly aimed at stopping local governments from blindly building new projects and taking on dangerously high debt loads, a person close to the government's policymaking apparatus told Caixin.

The document stressed the importance of building out high-speed rail infrastructure in a balanced way, with a ban, in principle, on construction of new projects with expected utilization rates below 80%. The document also laid out conditions for construction of the most expensive rail lines, with trains capable of traveling up to 350 kph, limiting them mostly to routes between major cities with large passenger volumes.

China's rapid high-speed rail buildup over the last decade has created the world's biggest system of its kind with about 38,000 km of track at the end of last year, equal to about a quarter of the national rail system. But with service now widely available between most major cities, many local governments have turned to construction of lines on less-traveled routes that may never be able to operate profitably.

These projects have burdened provincial governments with heavy debts due to the large investments required and the long periods needed to recoup those investments. At the same time, the national rail operator has been gradually hiving off lines with poor profitability to local governments through equity exchanges, increasing the financial pressure on those governments.

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Read also the original story.

Caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Nikkei agreed with the company to exchange articles in English.

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