State Council Suspends New Subway Projects

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Last updated at: (Beijing Time) Tuesday, January 28, 2003

State Council Suspends New Subway Projects

If it was not for media exposure of the State Council's recent decision to suspend all new subway projects, many would not have known there were 20 cities nationwide bidding for their own metros.

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If it was not for media exposure of the State Council's recent decision to suspend all new subway projects, many would not have known there were 20 cities nationwide bidding for their own metros.

Leaving aside whether Beijing should intervene at all in local matters, there is no harm to think twice over such expensive projects.

The cost of every kilometre of subway reaches 550 million yuan (US$66 million), according to the Ministry of Construction. Internationally, there has not been a precedent that ticket income can offset the cost of construction and maintenance. And there is yet to be a recognized profit-making model.

So subways are fittingly described as insatiable money eaters, or simply bottomless pits.

The Beijing Metro devoured 400 million yuan (US$48 million) in government subsidies last year.

Recently, as the economy decentralizes, some local governments have amassed considerable financial resources for big undertakings. Still, building a subway remains a conspicuous weight on any shoulders.

Take Hangzhou, one of the country's up-and-coming financial powerhouses. The city's overall financial income was 25.7 billion yuan (US$3.1 billion) in 2002. Its desired subway needs 15.2 billion yuan (US$1.8 billion).

Government spending on infrastructures has proven a powerful force leading China's continued growth since inauguration of the proactive financial strategies in 1998.

But the slowdown in growth of financial income and hikes in government spending have combined to initiate legitimate concerns about budgetary deficits.

In 2002, deficits had surpassed 3 per cent in the gross domestic product.

Largely due to the high dependence on government financing, the craze to go underground may hurt the financial sustainability of local governments. That will ultimately have an impact on the national economic picture.

Finance Minister Xiang Huaicheng, echoing Premier Zhu Rongji's call to control expenditure, has vowed to bring deficits under control in 2003.

For that reason, too, the costly metros deserve serious rethinking.

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