China’s ‘Railway Development Fund’ to help ease CRC’s financial woes

Beijing:  China’s newly established railway development fund might serve as an expedient measure to help finance the country’s railroad construction projects over the next two years and help ease financial pressure on the China Railway Corporation (CRC) as it is mired in heavy debt after it took over a portion of business from the former Ministry of Railways in 2013, Guangzhou’s Southern Weekly reports.

The fund was established on Sept. 25 to attract private investment into the railway sector to financially support the CRC, according to the paper. CRC is the fund’s major backer, and the individual investment arms of the four banks will act as investors in the fund.

The four banks are three of China’s “Big Four” state-owned banks, including the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China and China Construction Bank, as well as the Fujian province-based Industrial Bank Co.

The fund’s duration will be 15 to 20 years and will ensure stable and reasonable returns on investment.

The country is currently facing a shortfall in capital for several of the construction projects related to new rail lines, with some high speed railways facing particularly sizeable shortages.

For a long time, investment in the construction of railways had been under the jurisdiction of the government, with the capital sourced mainly from the central and local governments, along with it issuing bonds and taking loans from banks. Bank loans contributed the lion’s share of the capital.

Since the 2008 financial crisis, China has begun investing aggressively in railway construction to maintain steady economic growth. As a result, the Ministry of Railways had spent 663.8 billion yuan (US$108 billion) as of 2013 and the massive outlay earmarked to upgrade the country’s rail network gave rise to institutionalized graft within the ministry.

Before the Ministry of Railways was disbanded in 2013 when railway construction still fell under the jurisdiction of the ministry, it has not come under pressure for the repayment of its huge debt. However, the situation changed after the CRC was established, since the central government has become even more enthusiastic about investing in railway construction, forcing the company to take on more and more debt, according to the report.