China's economic planner approves five railway projects

China’s National Development & Reform Commission last week approved five railway projects for as many regions.

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They will involve the construction of 1,530km of rail across the Chinese provinces of Heilongjiang, Jiangsu, Anhui and Shandong, and the Xinjiang Autonomous Region.

The success of the projects is dependent on sufficient funding, however.

The total amount of investment needed for the projects is expected to reach 142.4 billion yuan ($23.2 billion) – 131.6 billion yuan ($21.4 billion) for construction and 10.8 billion yuan ($1.8 billion) for the purchase of train cars.

There was little response in the steel market towards the news, given that the approval was within expectation.

“Those five projects have all been listed on the government schedule for a while, so that was no surprise to the market,” a Beijing-based steel analyst said.

“But we can tell the government’s determination to promote the projects as it approved all five at the same time,” he added.

“The economic data for January and February was quite weak. People have doubts about the health of China’s economy. It’s time for the government to do something to stabilise market sentiment,” a Shandong-based futures analyst said.

Market participants believe that the government is taking action to support the market.
Apart from the approval of the railway projects, the government also released an update on its urbanisation plan.

Whether the projects will drive steel demand depends on their financing. The huge debt incurred by China Railway Corp, which had slowed down some of its projects, also has the market worried about the funding for the railway projects.

However, local governments are taking on a bigger responsibility this time. For example, those of Shandong and Jiangsu provinces will jointly raise 50% of the required funding for the rail line connecting the former’s Qingdao city with the latter’s Lianyungang.

It will also be the first time private funds are getting involved in railway investment.
Two Xinjiang-based funds – Xinjiang Guanghui and Xinjiang Huatong – will fund one of the projects in the region.

China plans to invest 630 billion yuan ($102 billion) in railways for 2014, with a focus on the central and western part of the country.


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