Kunming struggles to pay for costly subway project

August 13, 2013 Leave a comment

Kunming struggles to pay for costly subway project

Staff Reporter

2013-08-13

In order to develop its subway network, authorities in Kunming, the capital of southwestern China’s Yunnan province, are mired in dire financial straits as the network calls for an outlay of 300 billion yuan (US$49 billion), equal to 10 years of the city’s total financial income, reports the Chinese-language Money Week magazine.

The financial leverage of the Kunming city government has reached an unsustainable level as its financial income is insufficient to repay debts. Like other major Chinese cities, the local government in Kunming relies on municipal financing platforms to fund the city’s infrastructure projects. Kunming has 48 financing platform companies, of which the three leading ones are the Rail Transportation Co, the Transportation Investment Co, and the reserves center for land and mining assets.The long-term debts and bonds payable of the three major financing platforms totaled 46.4 billion yuan (US$7.6 billion) at the end last year, equal to the total debt of the city. With the city’s financial income reaching 37.8 billion yuan (US$6.2 billion) last year, the debt ratio of the city government topped 122.9% last year.

In a recent report, the city government said, “With the financial input for major infrastructural cities becoming ever larger, the gap between financial income and outlay has widened, a problem aggravated by the stable monetary policy of the central government, which increases the difficulty of financing companies in obtaining funds and boosts loan costs.”

Construction of the city’s subway network began in 2009, with plans to run nine routes, coupled with five railway lines, totaling 562 kilometers in length. It is the largest infrastructural project of its kind in Kunming, with total investment estimated to reach 300 billion yuan (US$49 billion).

A banking consortium, headed by the Yunnan branch of China Development Bank, was formed to help fund the huge project. In May 2009, the Yunnan city government and provincial branch of China Development Bank signed an agreement in Beijing, according to which the banking consortium will provide a loan of 12 billion yuan (US$2 billion) for the project, with a 25-year term and five-year grace period. In October 2009, the Yunnan branch of China Development Bank signed another agreement with the city government, pledging to loan of 29.5 billion yuan (US$4.8 billion) to Kunming Rail Transportation Co. In the following month, the city government received an additional loan of 10 billion yuan (US$1.6 billion) for the renovation of the city’s railway system.

According to the near-term rail transportation construction plan of Kunming (2013-2019), approved by the National Development and Reform Commission in April this year, the city will invest 63.5 billion yuan (US$10.4 billion) in rail transportation, of which 25.4 billion yuan (US$4.1 billion) is capital, or 40% of the total outlay, will be met by the city’s own finance and the remainder will come from banking loans.

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