Nov 18, 2017 06:14 AM

China Revises Key Policy to Rein in Subway Boom

China’s top economic planning authority is revising the State Council’s 2003 subway development policy to raise the bar for local subway proposals amid growing central government concerns over a debt-driven infrastructure boom.

Sources close to the matter told Caixin that the National Development and Reform Commission is soliciting internal comments on a draft revision to the 2003 policy. The commission proposes to tighten scrutiny of population, GDP and fiscal conditions of the cities that want to build subways.

The move came after the cities of Baotou and Hohhot, both in North China's Inner Mongolia autonomous region, scraped construction plans for subway projects worth billions of dollars under central government pressure. The project cancellations sparked market speculation that Beijing is tightening its grip on local subway projects because of debt concerns after an investment binge in city-rail projects since 2015 to boost economic growth.

An NDRC official told Caixin that the commission hasn’t suspended approvals of local subway projects but has strengthened oversight and stiffened assessments of proposed projects.

“It doesn’t mean subway construction is not allowed,” said the official, who declined to be named.

Under the 2003 policy, the State Council set three criteria for approval of city subway proposals. The city's urban population should exceed 3 million, its GDP should surpass 100 billion yuan, and it should be able to collect more than 10 billion yuan a year in revenue.

But in the past couple of years, many smaller cities that do not meet those requirements managed to obtain approval and have scrambled to launch subway projects in a bid to stimulate local growth, according to an official at a central province.

By the end of 2016, 43 cities had received nods from the NDRC to go ahead with subway projects, up from 35 cities in 2012. In the past five years, the number of cities that have rail transit operations grew from 17 to 27, while the combined distance of the nation’s subway lines in that time almost doubled to 3,169 km (1,969 miles) from 1,740 km.

Baotou, which recently cancelled a 30 billion yuan ($4.5 billion) subway project, has a population of about 2.7 million. Sources close to the city government said the central government called off the project in August due to the drain it placed on city coffers. Baotou had intended to fund 60% of the subway project’s cost from bank loans.

Separate sources told Caixin that in addition to the Baotou subway project, a number of infrastructure projects in Inner Mongolia have been halted since August, including two subway lines, one expressway project and a new airport project in the capital city of Hohhot, involving total investment of more than 107 billion yuan.

The cancellation of the Inner Mongolia subway projects is having a ripple effect in other cities. Several city governments, including those of Xianyang in Shaanxi province and Wuhan in Hubei province, said in statements that their subway plans are unlikely to win immediate approval under the central government’s crackdown on financial risks related to borrowing for such projects.

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