China halts two high-speed rail projects citing growing local govt debt

Beijing: Due to growing local government debt, China has ordered a halt to work on two high-speed rail projects with a total investment of 130 billion yuan (USD 20 billion) in Shandong and Shaanxi provinces.

Citing local media, Nikkei Asia had learnt that last month, the work on a 270-km line connecting Jinan, the capital of eastern China’s Shandong Province, and the city of Zaozhuang in the south of the province, was suspended.

Earlier this month, the work came to a halt on three lines with a planned total investment of 71.6 billion yuan being built as part of a project called Guanzhong Chengji, which consists of 13 lines in northwest China’s Shaanxi Province.

China has relied heavily on high-speed rail and other infrastructure building to maintain its fast economic growth, however, there are concerns that resorting to such construction too often could lead to dangerously high debt levels and result in projects that are poorly designed and underutilised.

In March, the Chinese State Council released a document on the development of the country’s rail system that was partly aimed at stopping local governments from blindly building new projects and taking on dangerously high debt levels, Nikkei Asia reported citing a person close to the government’s policy making apparatus.

Many local governments in China have turned to construction of lines on less-traveled routes that may never be able to operate profitably.

Nikkei Asia further reported that such projects had burdened China’s provincial governments with heavy debts due to the large investments required and the long periods needed to recoup those investments.

Chinese authorities are currently on high alert for financial problems, particularly in some western and northern regions, whose ability to repay credit is strained amid stimulus tapering and a decline in revenue due to the pandemic and government-mandated tax cuts, South China Morning Post (SCMP) reported.

Beijing set a much lower-than-expected growth target of 6 per cent for this year, despite estimates from private economists that expansion could reach 8 per cent.

Many economists and policy advisers have warned that increasing debt in China could weigh on the recoveries of some financially vulnerable regions.