Debt Takes Its Toll

Vehicles wait at the Langdong Tollgate on the Guilin-Beihai Highway in Nanning, capital of the Guangxi Zhuang autonomous region, October 2011

Yet another rumble of local-government debt trouble. After a three-year highway building boom across China, outstanding debt for toll-road construction is 2.2 trillion yuan ($346 billion), according to numbers compiled by Caixin. That is much higher than the 1.3 trillion yuan outstanding at the end of last year counted by an official audit published earlier this year covering 16 of China’s 29 provinces. Banks have provided 90% of the lending. Toll roads in Guangdong account for 10% of the total, at 227 billion yuan, with another eight provinces collectively accounting for a third more, the Caixin report says.

The danger lies in tolls barely raising sufficient revenue to service the debt. China’s toll roads account for 95% of the country’s 74,000 kilometres of highways, such as the Guilin-Beihai Highway shown in the Xinhua picture above. Yet the audit found that they generated only 170 billion yuan in revenue last year, with just four provinces and municipalities a profit at the tollgates. Guangdong, Caixin says, collected 789 million yuan in road tolls last year and had to use all but 19 million of that on debt repayment. Other provinces are having to take out new loans to pay off old ones.

The audit found that more than half of new highway loans were being used to that end. That is getting more difficult for provinces to do as Beijing tightens the liquidity spigot, leaving some highways uncompleted as construction comes to the same dead stop as their funding. Meanwhile, other political constraints don’t give provinces much if any scope to raise tolls.

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5 Comments

Filed under Economy, Transport

5 responses to “Debt Takes Its Toll

  1. David

    From the entry:

    “The danger lies in tolls barely raising sufficient revenue to service the debt. ”

    “That is getting more difficult for provinces to do as Beijing tightens the liquidity spigot, leaving some highways uncompleted as construction comes to the same dead stop as their funding. Meanwhile, other political constraints don’t give provinces much if any scope to raise tolls.”

    If I’m sitting in Beijing and weighing the two statements above, it would seem cheaper to me to step in and provide whatever liquidity was needed to finance/complete the project(s)-in-question, rather than see (read: answer for) less favorable outcomes. This is the beauty of central planning, no?

    Thoughts?

    • Ultimately Beijing will bailout its provincial road builders if necessary, but it probably considers itself to have more pressing concerns about other aspects of local government debt, and would want the provinces to be the funders of next resort. Interestingly quite a few of the toll-road companies, though provincially-owned, are stock-exchange listed.

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