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Struggling railways ministry seeks RMB800bn bailout

  • Staff Reporter
  • 2011-11-08
  • 10:48 (GMT+8)
An advert for China's high-speed trains. The Ministry of Railways has reportedly asked the government for a further 800 billion yuan (US$126 billion). (File Photo/CNS)

An advert for China's high-speed trains. The Ministry of Railways has reportedly asked the government for a further 800 billion yuan (US$126 billion). (File Photo/CNS)

Several Chinese government agencies have launched a capital injection plan to help the struggling Ministry of Railways estimated at between 800 billion yuan (US$126 billion) and 1 trillion yuan (US$157 billion), the local Economic Observer reports.

As of June 2011, the ministry had incurred 2.09 trillion yuan (US$329 billion) in debt, including 637.67 billion yuan (US$100.5 billion) in liquidity debt/short term debt, and 1.45 trillion yuan (US$228 billion) in long term debt, according to railway industry experts.

According to the report, two months ago the ministry suggested that the central government issue public bonds worth 400 billion yuan (US$63 billion) and the Ministry of Finance provide another 400 billion yuan in financial aid.

The ministry struck deals to secure 200 billion yuan (US$31.5 billion) in debt financing, including 100 billion yuan (US$15.75 billion) in bank loans and another 100 billion yuan from the issuance of railway construction bonds. This is an increase of 20 billion yuan (US$3.15 billion) from last year but is not enough to resolve the ministry's ramping debt.

As early as May, the ministry was showing signs of financial strain. The crisis surfaced after a nationwide railway safety inspection began following the Wenzhou high-speed rail disaster of July 23, which killed 40 people.

The ministry then began making visits to various banks to discuss larger loans but to no avail. It then turned to the China Banking Regulatory Commission for help. A banking source said that the regulator convened a meeting of several major banks in September to ask them to increase their lending to the ministry.

However, the regulator and the banks have had different views regarding the means of loan repayment. Significantly, the ministry has been paying back some of its old loans through new loans. "The ministry should seek funds from the capital market because the market allows the issuing of new bonds to replace old ones," the banking source said.

Four major banks agreed to lend less than 50 billion yuan (US$7.9 billion) to the ministry, based on their loan quota.

It is reported that 1.12 trillion yuan (US$176.5 billion) of the 4 trillion yuan (US$630 billion) in national investment in 2008 was directed to the railway sector. As of September this year, railway assets reached 400 billion yuan (US$63 billion), with 700 billion yuan (US$110 billion) to be injected this year. This means that another 300 billion yuan (US$47 billion) will be channeled into the sector this year.

Moreover, the rapid development of the country's rail network added an additional 200 billion yuan (US$31.5 billion) to the ministry's debt.

According to official figures, the ministry's liability ratio rose from 37.53% in 2005 to 57.44% in 2010, while its financial debt ratio rose from 44.87% to 81.24% over the same period. Despite this, the ministry has made few efforts at reforms or to attract private capital.

A banking expert said the ministry's high debt ratio is the main reason for its financial woes and that the Ministry of Finance's rush to extend support could hurt the taxpayer.

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