China is to cut its spending on railway next year and, following the cut news, its railway shares downed in Hang Seng Index.
The Railway Ministry plans to invest 500 billion yuan (79 billion US dollars) on fixed assets next year, including 400 billion yuan (63.2 billion US dollars) for railway construction, minister Sheng Guangzu said at an annual railway working conference Friday.
The investment scale registers a slight decline from the total expenditure of 469 billion yuan this year and a marked decrease from over 700 billion yuan (111 billion US dollars) in 2010.
Since the deadly crash between two high-speed trains in Wenzhou in July, this is the first time the government announced a clear-cut goal for future railway development.
According to the official, the investment will be used to finish key projects, and some 6,366 kilometers of new lines will be put into service in 2012.
Meanwhile, the money will also be used to kick off construction of major coal transport lines and projects that help complete a trunk railway network and are urgently needed for economic development, Sheng said.
Sheng stressed that rapid railway development should be maintained, as it plays an important role in the country's social and economic development, especially in boosting domestic demand.
He said railroad construction should be promoted scientifically and orderly next year, which is a severe challenge, and that there is still much to be done to collect sufficient funds for railway projects.
Sheng admitted that it would be an arduous task to ensure quality and safety of railway projects amid massive ongoing construction.
The ministry will increase efforts to raise money for railway construction and enhance management over its funding, he said.
In response to Friday’s spending cut news, railway sectors registered lukewarm performance against a modest rally of Hang Seng Index. China Rail Group Ltd closed at HK dollars 2.59, down 1.15 percent. China Railway Construction Corp Ltd closed at HK dollars 4.47, down 0.22 percent. China South Locomotive & Rolling Stock Corp closed at HK dollars 5.16, down 0.58 percent. The benchmark Hang Seng index gained 250 points to 18629, up 1.37 percent.
Linus Yip, strategist from First Shanghai Securities, said that the market once held high hopes for the railway sector when news broke out that the state will support the ministry with bond financing.
“However, today’s number will obviously disappoint the market, and I don’t think the sector will perform well in the coming year,” Yip said on Friday.
The ministry is reportedly 2 trillion yuan (316.12 billion US dollars) in debt. Because money from the government's stimulus plan worth 4 trillion yuan (about billion US dollars) dried up and the tightened monetary policy made it unable to get bank loans, the ministry suffered a shortage of funds in 2011.
That led to the halting of more than 10,000 km of high-speed railway projects, including projects due to open this year being postponed to next year.
Sheng said that efforts will be made to gain support from related government agencies, expand the scale of bonds it issued, and get more bank loans.
The ministry will also make good use of all kinds of market tools and try to attract local government investment and private funds, he said.