2012-03-06

China slams the brakes on highway construction

First it was a slowdown in high speed rail, then subways and now highways.

Slow ahead: China puts the brake on freeway construction
The National Development and Reform Commission under the State Council, or cabinet, has issued an instruction to give priority only to the most urgent freeway systems as the average debt ratio at most provincial freeway companies has surged to 70%.

The debt ratio is now even more risky than the 58% debt ratio incurred by the country's high-speed rail system, whose expansion speed has already been reduced significantly.
Where's Chinese growth going to come from if the gigantic investment portion of GDP keeps cutting reduced?
A study by Beijing Jiaotong University warned that the high debt ratio of more than 70% could force a halt on construction work and leave only unfinished "broken freeway" sections.

The halt of lending from financial institutions and the low return on investment of just 5% from the freeway services are quickly drying up the financial resources. The Shaanxi Freeway Group, which used to be treated as a VIP client, is no longer able to get new bank loans as its debt ratio has climbed up to 88%.
China's GDP target for the previous 8 years was for 8% and they beat that number even in 2008. The new 7.5% target may turn out to be optimistic.

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