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New subway push means big investments, big risks

By Li Qiaoyi (Global Times)

11:15, February 05, 2013

New metro line projects approved by the central government in 2012 will necessitate investment totaling 910 billion yuan ($145.96 billion) over the next few years, the official Shanghai Securities News reported Monday, warning against the risks involved in a subway investment spree as a means of reviving the economy.

Last year, the National Development and Reform Commission (NDRC), the nation's top economic planner, approved a total of 2,710 kilometers of new metro line projects for 28 cities in the next six to eight years, involving investments worth more than 910 billion yuan, according to the newspaper report, citing data from the NDRC.

Current ongoing subway projects, as well as projects approved prior to 2012 but not yet started, already involve injections worth over 1 trillion yuan, said the report, which disclosed that local governments will bear an estimated burden of 550 billion yuan in bank loans for projects approved in 2012.

Local government coffers will generally provide up to 40 percent of the investment required for metro line projects, while the rest will mainly come from the banking system, according to the NDRC.

The big injections will mean big risks, especially for the smaller cities involved in the investment spree, warned the report, citing an unnamed expert from Tsinghua University as saying that "in cities in central and western China such as Nanchang, Kunming and Nanning, total investments into building a metro line would be equivalent to about one year of local tax revenue."

The NDRC could not be reached for comment on Monday.

"Last year's subway boom is part of the government's big injections into infrastructure construction to help revive the economy," said Li Lei, a Beijing-based transportation industry analyst with China Securities Co.

While downplaying investment risks involved in the projects, which Li believes will boost the country's urban transport to meet the need for continued urbanization, he also noted that "the government should remain wary of subway projects in some third-tier cities, where metro lines are not a must."

"In addition to construction costs, operation and maintenance costs should be taken into account while considering new subway projects," Sun Zhang, a professor at the Urban Rail Transit and Railway Engineering Department at Shanghai-based Tongji University, told the Global Times on Monday.

Instead of obsessively building subways, it would be more affordable to consider the alternatives of light rails and trolleys in cities, Sun said, urging the government to think hard before committing to the subway boom.

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