Expert: China's rail spending spree has looming risks

17:11, January 07, 2011      

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China is on an investment spree in terms of railway construction, including high-speed rail and urban rail. It has taken the country a decade to build the kind of railway network that took developed countries a century to achieve. However, there are risks, warned some experts, of rising public deficits in local governments.

According to the blueprint for the development of China's railway, some 700 billion yuan will be spent on railway construction annually during the next five years. The total of 3.5 trillion yuan for the five years is 1.3 trillion yuan more than the 11th Five-Year Plan (2006-2010). Another analysis shows that 270 billion yuan is expected to pour in urban rail transportation annually between 2009 and 2020.

While that staggering expansion of railways could boost the country's urbanization process and GDP growth, it could also trigger the risk of an alarming increase in local budget deficits.

In an article published in the Beijing Times, Ye Tan, a noted commentator on China's economy, warned that the investment spree in high-speed rail and urban rail transportation could push the inflation and tax burden higher, which is not good for the economy as a whole.

It is crucial to take fiscal capability into account when the government makes decisions on railway investment, Ye said.

By Li Jia, People’s Daily Online
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