China’s railway system faces financing difficulties

A recent WSJ report  says that many of China’s railway projects face insufficiency of funds. Major projects in Guangdong, Guizhou, Fujian, to name a few, are forced to a halt.

Senior engineer Wang Mengshu at China Railway Tunnel Group said that the lack in funding was caused by two factors: a tighter fiscal policy to tame the inflation problem, and the government’s policy shift towards the financing of railway projects after the high-speed train crash this July.

Bloomberg has an article this April stating the concern that China’s high-speed network will have difficulty paying the 1.8 trillion yuan ($275 billion) debt.

I think the release of the funding pressure is just the question of time. In the paper by Wu, W. and Wu (1999), they argue that China’s railway system was mainly operated by the government, and this was in conflict with the market operating system that was needed to optimize resource allocation and profits. They suggested diversifying financing methods and reforming railway system.The government is already doing this, as suggested by McKinsey Associate Principal Evan Auyang, but the extent and efficiency is redoubtable.

Moreover, the Chinese expansion of railway system seems to be too ambitious considering the existing immature technology of China’s high-speed rail. I’d prefer to see a more well-maintained railway system that benefits all than a blindly expanding high-speed one that is beyond the affordability of an average citizen.

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