To Boost Growth China Turns to $503 Billion Rail Expansion

China plans to give a further boost to its economy by spending $503B on expansion  of its railways.

As China turns to investments in infrastructure to bolster growth and improve connectivity across the country, it plans to spend 3.5 trillion yuan ($503 billion) to expand its railway system by 2020.

According to details released at a State Council Information Office briefing in Beijing, the high-speed rail network will span more than 30,000 kilometers (18,650 miles) under the proposal. The distance will cover 80 percent of major cities in China and is about 6.5 times the length of a road trip between New York and Los Angeles.

Marking a boon to Chinese suppliers of rolling stock such as CRRC Corp. and rail construction companies including China Railway Construction Corp. and China Railway Group Ltd, the plan will see high-speed rail lines across the country expand by more than half over a five-year period. As a 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 turned to a private company for first time to operate an inter-city rail service on the mainland earlier this year.

Under the plan released this week, China will also add 3,000 kilometers to its urban rail transit system.

According to a transportation white paper issued by the authorities, China had 121,000 kilometers of railway lines, including 19,000 kilometers of high-speed tracks, at the end of 2015. according to latest available data from the World Bank, the U.S. had 228,218 kilometers of rail lines as of 2014.

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

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

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

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

Some financial burdens of state-run China Railway Corp would be helped to be eased by the rail reforms, including raising ticket prices and allowing private investment. According to its third-quarter audited report, the rail operator’s liabilities totaled 4.29 trillion yuan as of Sept. 30 and incurred a loss after tax of 5.57 billion yuan in the first nine months of 2016. In the past two years, more than 600 billion yuan on rail-related infrastructure was spent by the company.

Yang Xin, an analyst at China International Capital Corp., wrote in a note on Dec. 26 that Guangshen Railway Co. could see profits rise as much as 68 percent if average long-distance rail fares climb 30 percent. Focusing on passenger transport, the company is the only one among three listed rail operators in China. It is co-operator with MTR Corp. for the line linking Hong Kong to the mainland and operates railways along the Pearl River Delta region.

(Adapted from Bloomberg)

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