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Fixed asset investment (FAI) in China's railways in 2015 is likely to exceed the CNY809bn last year and hit a new high, as the country pushes on with expanding the rail network, Fitch Ratings says.
China's railway FAI rose 33% yoy to CNY194bn (USD31bn) in January-May 2015, according to the National Bureau of Statistics. In May 2015, railway FAI was CNY55bn, a 44% yoy increase that was faster than the 18% yoy rise in April 2015.
The continued expansion of investment will support earnings growth for the railway construction companies, such as China Railway Group Limited (BBB+/Stable) and China Railway Construction Corporation Limited (Not Rated) in the near term, and benefit building material companies, such as West China Cement Limited (BB-/Negative) and China Shanshui Cement Group Limited (B+/Negative) in the longer term, once construction starts.
Railway FAI in January-May 2015 reached 24% of the full-year target of CNY800bn set by China Railway Corporation (CRC) in the beginning of the year. CRC is the operations arm of the former ministry of railways and is a major investor in and owner of rail assets in China. Fitch expects CRC to revise up the target, based on the progress of construction and its fund raising during the year. Railway FAI in 2014 reached CNY809bn, CRC says, 28% higher than its target of CNY630bn at the start of the year.
The Chinese government has emphasised the development of the rail network, including in its 12th Five-Year Plan (FYP), a government blueprint for development, which ends in 2015. This is driven by China's rapid urbanisation in recent years and the still-low railway length per capita. The National Development and Reform Commission (NDRC) approved a total of CNY459bn for urban rail and high-speed rail projects in May, and approved more railway projects worth CNY110bn earlier in June. This pipeline of project approvals will fuel investments in the sector.
If railway FAI reaches CNY800bn in 2015, total investment over the 12th FYP would be CNY3.0trn, and Fitch expects railway investment in the 13th FYP to be similarly robust, driven by China's urbanisation and improving funding sources for the railway sector. Fitch expects the railway development section of the 13th FYP to be drafted in 1H15 and finalised in early 2016.
