China hits brakes on urban rail projects to address debt

China hits brakes on urban rail projects to address debt
28/07/2018 , by , in INTERNATIONAL

China has moved to rein in a boom in urban rail projects that propelled growth in sectors related to their construction but also drove up local government debt levels, which have become a priority for the central government’s effort to defuse economic risks.

In the latest move, the State Council, China’s cabinet, on Friday issued a guideline that substantially raised the bar for local rail projects and barred local governments from issuing too much debt through hidden channels for such projects.

While the country has been slashing infrastructure spending to curb soaring local government debt, the new measures further blocked loopholes that some local governments had taken advantage of in starting new rail projects, experts noted.

In the guideline, the State Council raised requirements in 12 areas such as population, public budget revenue, GDP and current debt level of cities applying for approval for new railway projects.

Most notably, the guideline requires that the GDP of the city reach at least 300 billion yuan ($44.88 billion) to be eligible for new rail projects. That is triple the previous level.

Such a level is aimed at disqualifying many Chinese cities that had been planning rail projects, according to Sun Zhang, a rail expert and professor at Shanghai Tongji University, who participated in drafting the guideline.

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