(Ecns.cn)--China's Ministry of Railways may not be able to make ends meet in 2011, as its borrowing and operation costs cannot be offset by earnings in the short term, the Beijing-based magazine Caixin Century reported.
Moreover, the ministry, which acts as a corporation in the debt market, will be under huge loan pressure; it has lent more to finance the expansion of China's rail network even though its old debts have not been repaid yet, the report said.
The ministry reported a loss of 3.76 billion yuan and revenue of 155.8 billion yuan in the first quarter of this year, according to the website of the Shanghai Clearing House, an inter-bank clearinghouse authorized by the People's Bank of China and the Ministry of Finance.
Insiders said the loss will be expanded. In the face of rising costs the ministry may encounter a loss of 20 billion yuan this year, even though its revenue may increase 15 percent, the report said, citing an investment insider named 'Barrons'.
Huge debts and increasing costs
Compared with the ministry's 15 million yuan of net profit in 2010, its loans increased by 450 billion yuan last year, bringing the amount of gross debt to 1.89 trillion yuan, according to its 2010 annual report released on July 14.
The ministry spent 150.1 billion yuan to repay debt in 2010, among which 125 billion yuan was used to pay principal and 25 billion yuan on interest, according to the report. Its cash flow from operations was only 156.7 billion yuan, meaning the ministry had to lend more to support its huge investment in railway construction.
At the end of 2010, there were 91,000 kilometers of railways in operation, among which 8,358 kilometers were high speed rails. Compared with 2010, the ministry may encounter 35 billion yuan in additional expenditures this year, among which 15 billion yuan would be interest payment. The depreciation of its rail networks this year may increase by 20 billion yuan, which could lead to the ministry becoming entrapped in deficit, the columnist Barrons said.
The ministry will face 250 billion yuan worth of debt in 2011. Data cited by the report showed that the ministry has issued 585.5 billion yuan worth of bonds and would pay 144.8 billon yuan in principal and interest this year. Moreover, it will also repay banks 100 billion yuan worth of loans.
However, its cash flow from operations may be about 200 billion yuan in 2011, which means it is impossible for it to repay the debts depending on its own cash flow without loans.
But as the central bank implements tightening of monetary policy to control inflation, commercial banks are no longer rushing to lend money to the ministry, and have canceled favorable interest rate policies. "Banks used to issue loans to the ministry with interest rates 10 percent lower than the benchmark, or even with fixed interest rates, but their talks were stalemated this year because banks won’t accept such terms anymore," a bank insider told the magazine. "The ministry only got about 100 billion yuan in loans from banks this year."
China's Big Four banks -- Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Agricultural Bank of China -- used to be the ministry's major loan suppliers, the report said.
In addition to borrowing costs, the ministry also faces other increasing costs, including labor, fuel, electricity and maintenance, according to Barrons.
Take the Beijing-Shanghai High-speed Railway for example. According to statistics from Liu Zhirong, a media commentator, spending on the Beijing-Shanghai High-speed Railway may reach 15.6 billion yuan a year, including 7.4 billion yuan on interest payments, 1.9 billion yuan on electricity, 600 million yuan on labor, 2.7 billion yuan on maintenance, and 3 billion yuan on asset depreciation. Compared with its 13.9 billion yuan in ticket-sale income, the line may lose 1.7 billion yuan each year.
In the face of tightened capital inflows and increasing costs, the ministry is forced to slow down the expansion of its rail network. The ministry's investment in infrastructure construction may decline to 400 billion yuan this year, from the initial planned 700 billion yuan, according to The Economic Observer.
