By Wen Rongping (温淑萍), Xi Si (席斯) Zhang Xiangdong (张向东) and Hu Rongping (胡蓉萍)
News, cover
Issue No. 543
Nov 7, 2011
Translated by Song Chunling
Original Article: [Chinese]

Update: On Nov 7, the Ministry of Railways officially denied that it is seeking 400 billion yuan in support from the government and the right to issue bonds worth 400 billion yuan

The Ministry of Finance (MOF), the National Development and Reform Commission (NDRC) and the China Banking Regulatory Commission (CBRC) have been instructed by the State Council to arrange a cash injection for the heavily-indebted Ministry of Railways.

The ministry needs to redeem 40 billion yuan in railway construction bonds and super and short-term commercial paper this month and has a further 340 billion yuan in debt maturing over the next twelve months. By the end of June 2011, the ministry's total debt stood at about 2.09 trillion yuan.

One railway industry employee told the EO that the completion of rail projects that have already begun to be built, will require another 800 billion to one trillion yuan in funds.

The ministry has applied for 400 billion yuan in financial assistance as well as the right to issue an additional 400 billion yuan in bonds.

"How can we provide such a huge sum?" a source close to the MoF told the EO.

So far, the ministry has also received approval for 200 billion yuan in funds - half of which would come in the form of a loan from the China Development Bank (CDB) - one arranged in spite of the banks' reluctance to issue the loan - and the other half through the issuing of a new tranche of railway construction bonds.

That bond issuance would raise 20 billion yuan more than the amount raised last year, but is still subject to the NDRC's final consent and, in any case, wouldn't cover the railway ministry's debts.

One person familiar with the industry told the EO that 200 billion yuan isn't even enough to cover the money the department owes various companies let alone interest payments required on loans that will mature in November or restarting work on the suspended railway projects.

The ministry can't survive without financial support - its "great construction leap" has left obligations worth 2 trillion yuan, and there's no sign that the funding gap can be plugged through institutional reform or by a drive to attract private capital.

"The ministry's large debt is the main problem. It's suffering now, but if financial assistance is rushed, the taxpayers will be harmed in the long-term," said one banking insider.