China to spend $503 bn on railways to boost growth

China plans to spend 3.5 trillion yuan ($503 billion) to expand its railway system by 2020 as it turns to investments in infrastructure to bolster growth and improve connectivity across the country.

The high-speed rail network will span more than 30,000 kilometers (18,650 miles) under the proposal, according to details released at a State Council Information Office briefing in Beijing Thursday. The distance, about 6.5 times the length of a road trip between New York and Los Angeles, will cover 80 percent of major cities in China.

The plan will see high-speed rail lines across the country expand by more than half over a five-year period, a boon to Chinese suppliers of rolling stock such as CRRC and rail construction companies including China Railway Construction Corp and China Railway Group Ltd. Earlier this year, China turned to a private company for first time to operate an inter-city rail service on the mainland, part of President Xi Jinping’s push to modernize the nation’s transport network amid slowing growth in the world’s second-largest economy.

China will also add 3,000 kilometers to its urban rail transit system under the plan released Thursday.

At the end of 2015, China had 121,000 km of railway lines, including 19,000 kilometers of high-speed tracks, according to a transportation white paper issued Thursday. The US had 228,218 kilometers of rail lines as of 2014, according to latest available data from the World Bank.

The Chinese government will invite private investment to participate in funding intercity and regional rail lines, Yang Yudong, administrator of the National Railway Administration, said at the briefing.

CRRC shares Guangshen Railway advanced as much as 1.5 per cent in Hong Kong trading. Shares of China Railway Construction climbed as much as 2.1 percent, and China Railway Group rose 0.8 percent in Hong Kong.

Further rail investments will be made in the poorer western cities despite unprofitable operations, Yang said. “We believe these railway lines will break even over time as the flow of people and goods experience fast growth,” he said.

The government plans to “adjust” fares to ensure rail businesses nationwide are viable, the official said, without being more specific.

The rail reforms, including raising ticket prices and allowing private investment, would help ease some financial burdens of state-run China Railway Corp. The rail operator incurred a loss after tax of 5.57 billion yuan in the first nine months of 2016 and its liabilities totaled 4.29 trillion yuan as of Sept. 30, according to its third-quarter audited report. The company spent more than 600 billion yuan on rail-related infrastructure in the past two years.

Guangshen Railway Co. could see profits rise as much as 68 percent if average long-distance rail fares climb 30 percent, Yang Xin, an analyst at China International Capital Corp., wrote in a note on Dec. 26. The company is the only one among three listed rail operators in China to focus on passenger transport. It operates railways along the Pearl River Delta region and is co-operator with MTR Corp. for the line linking Hong Kong to the mainland.

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