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Chinese railways set to grow 2.8pct from 2019-2027 - Fitch

Infra News - Published on Fri, 14 Dec 2018

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According to a report by Fitch Solutions, China’s railway sector is projected to grow at an average 2.8% from 2019-2027 thanks to an increase in public-private partnerships (PPP) despite their limited usage. China’s PPP programme has been criticised for the lack of involvement of private players amidst an infrastructure boom across all sectors in the past decade, with state-owned enterprises or private partners with links to the government dominating the project pipeline.

Fitch Solutions said in its report that “We expect such a situation to change as Beijing tackles rising government debt and spending irregularities, especially within the local government. Our country risk team has noted that the central government intends to combat rising local government debt by increasing scrutiny on local government financing vehicles (LGFVs) and placing more stringent requirements on borrowing and expenditure.”

As a result, the local government’s ability to directly finance costly infrastructure projects will be reduced, prompting the central government to turn to PPPs to counterbalance the funding gap created by the decrease in LGFV usage.

According to the report, only five out 42 high-speed rail projects and four out of 133 metro and light rail projects were earmarked as PPPs.

Fitch Solutions said that “Even then, these PPPs are mostly public dominated, with state-owned enterprises (SOEs) such as China Railway Corporation and China State Construction Engineering Corporation spearheading projects.”

The report said that Whilst railway projects were once perceived as risky, the Hangzhou-Taizhou high-speed railway project which was awarded to a consortium led by private Chinese conglomerate Fosun Group marks a turning point for the country’s railway PPP programme.

However, Fitch Solutions noted that foreign companies may continue to find PPPs in China inaccessible due to the business environment in China, further suggesting that when such opportunities rise, they will be limited to private Chinese enterprises in the short term.

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Posted By : Nanda Koijam on Fri, 14 Dec 2018
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