On July 2, 2013, National Business Daily published a commentary on the impact that banks’ tightening of credit will have on rail expansion.
China is transitioning from a country on tires to one on the rails. High-speed railways, urban subways, and light rails are becoming the primary mode of transportation. The total rail length will reach 6,000 kilometers by 2020, requiring an investment of 3 to 4 trillion yuan.
According to the commentary, real estate appreciation has become the most important element in funding rail transit construction. The rail transit companies that the local authorities control first acquire some land. Then they start to develop real estate, followed by construction of a rail transit system and other infrastructure in the area. This leads to anticipated appreciation of the land they own. The increase in the real estate market allows the rail transit companies to make the money needed to cover the cost of all the construction and to repay the debts they owe for rail transit.
The commentary concluded that, as banks tighten credit by evaluating the financials of prospective rail transit projects, a few planned rail transit projects will not make it.
Source: National Business Daily, July 2, 2013
http://ntt.nbd.com.cn/articles/2013-07-02/754446.html