China Annual Railway Investment to Fall to RMB 500 Billion

SHANGHAI, Nov. 8 (SMM) -- China’s RMB 4 trillion economic stimulus plan during the global financial crisis greatly promoted the development of the railway industry. According to data from the Ministry of Railways, the fixed assets investment in the railway industry soared to RMB 843 billion in 2010, higher than RMB 705 billion in 2009 and RMB 417 billion in 2008.

The Ministry of Railways always has great demand for funds, since it is expanding the world's largest high-speed rail network. The total length of Chinese high-speed rail exceeds 8,000 km currently and is expected to reach 16,000 km in 2020 when the railway network construction is completed. Wang Mengshu, Deputy Chief Engineer of China Railway Tunnel Group, said about RMB 800 billion should be invested in the railway construction every year based on the construction speed stipulated in the “Medium and Long-term Railway Network Planning”.

China’s bullet train crash occurred in July has shaken investors' confidence in the Ministry of Railways and its solvency. Since then, more than 80% of railway projects under construction have been postponed, and the completion time of many projects is extended by one year. The Ministry of Railways faces a high debt burden given growing debt pressures and unavailability of commercial bank credit. 

It's fortunate that the Ministry of Railways will obtain more than RMB 200 billion of financing support to ensure the payment of debts, the promotion of key projects, and the optimization of supporting projects.

The Chinese government clearly recognizes that railway construction, management and technology should develop simultaneously. Sources report that China’s annual investment in railway industry will likely fall to RMB 500 billion (USD 78 billion) during the 12th Five-Year Plan period. In this context, Steelease believes demand for steel products from railway infrastructure construction will weaken over the next few years.