China puts the brake on freeway construction

Discussion in 'China' started by Armand2REP, Mar 5, 2012.

  1. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

    Dec 17, 2009
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    Slow ahead: China puts the brake on freeway construction
    Tai Jui-fen and Staff Reporter 2012-03-04

    China slowed investment in expressway construction, which could leave many projects unfinished. (File photo/Xinhua)

    The Chinese government has abruptly cooled down construction of the country's extensive freeway networks as funding and return on investment cannot keep up with the rapid expansion.

    The National Development and Reform Commission under the State Council, or cabinet, has issued an instruction to give priority only to the most urgent freeway systems as the average debt ratio at most provincial freeway companies has surged to 70%.

    The debt ratio is now even more risky than the 58% debt ratio incurred by the country's high-speed rail system, whose expansion speed has already been reduced significantly.

    The central government has worked out a national freeway network development plan to complete a mammoth network of 34 new freeways by 2020, according to the Securities Daily. The density of freeways in provinces like Jiangsu, Shandong, Henan and Guangdong will be higher than those in industrialized nations like Japan and Britain in the future. But transport researchers at the commission pointed out that up to 70% of highway construction funds have been uneavenly allocated to the freeway sector.

    There are nine provinces with a highway budget exceeding 40 billion yuan (US$6.4 billion) each for 2012 with another six provinces ready to spend 30 billion yuan (US$4.8 billion), and 11 to allocate 10 billion yuan (US$1.6 billion) each.

    A study by Beijing Jiaotong University warned that the high debt ratio of more than 70% could force a halt on construction work and leave only unfinished "broken freeway" sections.

    The halt of lending from financial institutions and the low return on investment of just 5% from the freeway services are quickly drying up the financial resources. The Shaanxi Freeway Group, which used to be treated as a VIP client, is no longer able to get new bank loans as its debt ratio has climbed up to 88%.

    The government's financial planner has estimated that available finances will be unable to support the need of one trillion yuan each year (US$159 billion) for the next two years if the construction work is not slowed down. Huang Min, director general of basic industries at the commission, said the pace of freeway construction will be decelerated in the future.

    It would be a healthy approach to alleviate financial pressure and gradually complete freeway construction work depending on the urgency of various freeways, he said.

    Slow ahead: China puts the brake on freeway construction|Policy|Business|

    * China highway debt is $360 billion

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