China restarts new subway project approval after one-year suspension

Three workers are constructing a subway line. Photo: Biying

China has resumed approving new subway projects after giving a halt to it for over one year, in an apparent effort to prop up its slowing economy.

But this time, it wants to be more strict and discerning to avoid the past mistake of funding projects that provide little economic benefit to the cities involved.

In a July guideline, the National Development and Reform Commission, the country's planning agency, set a higher threshold for city applicants for urban public transport systems.

Two of the major changes include tripling the annual tax revenue and GDP required for approval to 30 billion yuan (US$4.4 billion) and 300 billion yuan (US$43.7 billion), respectively.

By that standard, four out of 43 Chinese cities that have already received the nod for subway projects would not qualify now.

Suzhou, East China's Jiangsu Province, is the only city to get the green light for a new phase of subway construction.

Last August, Beijing suspended a 30.5 billion yuan (US$4.6 billion) subway project in Baotou, North China's Inner Mongolia Autonomous Region, bringing to a halt a decade-long subway construction boom in the world's second-largest economy.

Soon after, it also ordered Inner Mongolia's capital Hohhot to suspend construction on two new lines which had received approval earlier.

People speculated that the move is aimed at reining in mounting local government debt because local officials, in order to boost economic growth and accelerate urbanization, kept investing in infrastructure construction regardless of high costs for labor and land acquisition.

Since the 2008 global financial crisis, 33 Chinese cities have built over 150 subway lines with about 4,500 km of track, more than all the subway lines in the US and the UK put together.

It is estimated that China's total debt soared from 141 percent of the GDP in 2008 to 258 percent of the GDP last year. The International Monetary Fund (IMF) warned that China's non-financial-sector debt would exceed 290 percent of the GDP by 2022.

The restart of the subway planning came against a slowdown in the economy and a deepening trade war with the US that is expected to hurt exports - though maybe not as fast as expected.

According to the latest figures from the National Bureau of Statistics, overall investment has slowed sharply this year. From January to August, fixed-asset investment slowed to 5.3 percent year-on-year while rail investment fell by over 10 percent.

Ideally, subway construction can support the steel and cement industry to help ease their overcapacity issues, create many construction jobs for a few years while projects are under way, and boost local demand, land value, as well as property prices.

But as with all capital-intensive projects, financing is the key. The debt pile from the previous craze for building subways and light rail systems a decade ago is still haunting Beijing.

Whatever the outcome of the new approval process, it is clear that China's mania for subway building is over and future expansion will proceed at a more measured pace.


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