China is expanding its subways in an attempt to boost infrastructure and drive growth.
The National Development and Reform Commission approved 25 subway projects by local governments, worth a total of 710.8 billion yuan ($112.1 billion) in investments. According to the Wall Street Journal, the local government would fund 40% of the projects. The surge in infrastructure projects underlines Beijing’s efforts to stimulate growth following a slowdown of 7.6% in the second quarter.
Nomura economist Zhang Zhiwei cited the 23 projects approved in 2009. China spent 366.4 billion yuan in the first half of the year for infrastructure budget as part of a 4 trillion yuan stimulus package, Finance Minister Xie Xuren said.
Standard & Poor’s Rating Services warned that the local regional government’s funding model would not be sustainable and raised concerns on funding difficulties. Standard & Poor’s credit analyst Parvathy Iver said: “Local regional governments traditionally rely on buoyant revenues from strong growth in land prices to finance their infrastructure projects. Now, with property prices becoming hardly affordable for many Chinese and the property market cooling, this revenue source might not be sufficient to finance new infrastructure projects”.
